China Overseas Grand Oceans Group (HKG:81) Is Paying Out Less In Dividends Than Last Year

China Overseas Grand Oceans Group Limited (HKG:81) is reducing its dividend from last year's comparable payment to CN¥0.05 on the 18th of October. However, the dividend yield of 6.0% still remains in a typical range for the industry.

View our latest analysis for China Overseas Grand Oceans Group

China Overseas Grand Oceans Group's Earnings Easily Cover The Distributions

Solid dividend yields are great, but they only really help us if the payment is sustainable. Based on the last payment, China Overseas Grand Oceans Group was paying only paying out a fraction of earnings, but the payment was a massive 132% of cash flows. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.

The next year is set to see EPS grow by 64.0%. Assuming the dividend continues along recent trends, we think the payout ratio could be 21% by next year, which is in a pretty sustainable range.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was CN¥0.0961 in 2013, and the most recent fiscal year payment was CN¥0.184. This implies that the company grew its distributions at a yearly rate of about 6.7% over that duration. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

We Could See China Overseas Grand Oceans Group's Dividend Growing

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. China Overseas Grand Oceans Group has impressed us by growing EPS at 7.1% per year over the past five years. China Overseas Grand Oceans Group definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Our Thoughts On China Overseas Grand Oceans Group's Dividend

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.

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 Grand Oceans Group has 3 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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