China Overseas Grand Oceans Group (HKG:81) Will Pay A Smaller Dividend Than Last Year

China Overseas Grand Oceans Group Limited's (HKG:81) dividend is being reduced from last year's payment covering the same period to CN¥0.01 on the 17th of October. This means that the dividend yield is 4.5%, which is a bit low when comparing to other companies in the industry.

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China Overseas Grand Oceans Group's Payment Could Potentially Have Solid Earnings Coverage

If it is predictable over a long period, even low dividend yields can be attractive. Prior to this announcement, China Overseas Grand Oceans Group's dividend made up quite a large proportion of earnings but only 3.5% of free cash flows. This leaves plenty of cash for reinvestment into the business.

Over the next year, EPS is forecast to expand by 162.9%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 34% which would be quite comfortable going to take the dividend forward.

View our latest analysis for China Overseas Grand Oceans Group

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2015, the annual payment back then was CN¥0.04, compared to the most recent full-year payment of CN¥0.0911. This means that it has been growing its distributions at 8.6% per annum over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

The Dividend Has Limited Growth Potential

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Earnings per share has been sinking by 38% over the last 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. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.

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 don't think China Overseas Grand Oceans Group is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 3 warning signs for China Overseas Grand Oceans Group that investors should take into consideration. Is China Overseas Grand Oceans Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.