China Overseas Land & Investment (HKG:688) Will Pay A Smaller Dividend Than Last Year

China Overseas Land & Investment Limited's (HKG:688) dividend is being reduced from last year's payment covering the same period to CN¥0.40 on the 19th of July. Despite the cut, the dividend yield of 4.2% will still be comparable to other companies in the industry.

View our latest analysis for China Overseas Land & Investment

China Overseas Land & Investment's Payment Has Solid Earnings Coverage

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. However, prior to this announcement, China Overseas Land & Investment's dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.

Looking forward, earnings per share is forecast to rise by 42.4% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 28%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2013, the dividend has gone from CN¥0.307 total annually to CN¥0.7. This means that it has been growing its distributions at 8.6% per annum over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

Dividend Growth Is Doubtful

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. China Overseas Land & Investment has seen earnings per share falling at 7.3% per year over the last five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

In Summary

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, China Overseas Land & Investment has 3 warning signs (and 1 which shouldn't be ignored) we think you should know about. Is China Overseas Land & Investment not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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