China Overseas Land & Investment's (HKG:688) Dividend Is Being Reduced To CN¥0.35

China Overseas Land & Investment Limited (HKG:688) is reducing its dividend from last year's comparable payment to CN¥0.35 on the 5th of October. This means that the annual payment is 4.2% of the current stock price, which is lower than what the rest of the industry is paying.

View our latest analysis for China Overseas Land & Investment

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

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. China Overseas Land & Investment is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

The next year is set to see EPS grow by 73.5%. If the dividend continues on this path, the payout ratio could be 26% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was CN¥0.307 in 2013, and the most recent fiscal year payment was CN¥0.65. This means that it has been growing its distributions at 7.8% per annum over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. China Overseas Land & Investment might have put its house in order since then, but we remain cautious.

Dividend Growth Potential Is Shaky

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. China Overseas Land & Investment's earnings per share has shrunk at 11% a year over the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. 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.

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 probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 1 warning sign for China Overseas Land & Investment that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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