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

China Overseas Land & Investment Limited (HKG:688) is reducing its dividend from last year's comparable payment to CN¥0.40 on the 19th of July. The dividend yield will be in the average range for the industry at 4.4%.

Check out our latest analysis for China Overseas Land & Investment

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

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Prior to this announcement, China Overseas Land & Investment's earnings easily covered the dividend, but free cash flows were negative. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Over the next year, EPS is forecast to expand by 45.6%. If the dividend continues on this path, the payout ratio could be 29% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2013, the annual payment back then was CN¥0.307, compared to the most recent full-year payment of CN¥0.7. This implies that the company grew its distributions at a yearly rate of about 8.6% over that duration. 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

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. In the last five years, China Overseas Land & Investment's earnings per share has shrunk at approximately 7.3% per annum. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.

The Dividend Could Prove To Be Unreliable

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 3 warning signs for China Overseas Land & Investment you should be aware of, and 1 of them is potentially serious. 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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