Everbright Grand China Assets' (HKG:3699) Shareholders Will Receive A Bigger Dividend Than Last Year

Everbright Grand China Assets Limited (HKG:3699) has announced that it will be increasing its periodic dividend on the 18th of July to CN¥0.0151, which will be 129% higher than last year's comparable payment amount of CN¥0.0066. This takes the annual payment to 4.9% of the current stock price, which unfortunately is below what the industry is paying.

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Everbright Grand China Assets' Payment Could Potentially Have Solid Earnings Coverage

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Before making this announcement, Everbright Grand China Assets was paying a whopping 102% as a dividend, but this only made up 38% of its overall earnings. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

EPS is set to fall by 7.5% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we believe the payout ratio could be 44%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Check out our latest analysis for Everbright Grand China Assets

Everbright Grand China Assets' Dividend Has Lacked Consistency

Looking back, Everbright Grand China Assets' dividend hasn't been particularly consistent. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The dividend has gone from an annual total of CN¥0.0203 in 2020 to the most recent total annual payment of CN¥0.0182. Doing the maths, this is a decline of about 2.2% per year. A company that decreases its dividend over time generally isn't what we are looking for.

Dividend Growth Is Doubtful

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Over the past five years, it looks as though Everbright Grand China Assets' EPS has declined at around 7.5% a year. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.

Everbright Grand China Assets' Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think Everbright Grand China Assets' payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 4 warning signs for Everbright Grand China Assets (1 makes us a bit uncomfortable!) that you should be aware of before investing. Is Everbright Grand China Assets not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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