Shenzhen Investment (HKG:604) Has Affirmed Its Dividend Of HK$0.07

Shenzhen Investment Limited (HKG:604) will pay a dividend of HK$0.07 on the 15th of October. Based on this payment, the dividend yield on the company's stock will be 7.8%, which is an attractive boost to shareholder returns.

Check out our latest analysis for Shenzhen Investment

Shenzhen Investment's Payment Has Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. Shenzhen 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.

Looking forward, earnings per share is forecast to fall by 11.1% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could be 38%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The first annual payment during the last 10 years was HK$0.14 in 2011, and the most recent fiscal year payment was HK$0.18. This means that it has been growing its distributions at 2.5% per annum over that time. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

Shenzhen Investment May Find It Hard To Grow The Dividend

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 has been rising at 2.4% per annum over the last five years, which admittedly is a bit slow. While EPS growth is quite low, Shenzhen Investment has the option to increase the payout ratio to return more cash to shareholders.

In Summary

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While Shenzhen Investment is earning enough to cover the payments, the cash flows are lacking. 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, Shenzhen Investment has 3 warning signs (and 1 which shouldn't be ignored) we think you should know about. We have also put together a list of global stocks with a solid dividend.

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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.
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