CITIC Telecom International Holdings (HKG:1883) Is Paying Out A Larger Dividend Than Last Year

The board of CITIC Telecom International Holdings Limited (HKG:1883) has announced that it will be increasing its dividend on the 13th of June to HK$0.17. This will take the dividend yield from 8.0% to 8.0%, providing a nice boost to shareholder returns.

View our latest analysis for CITIC Telecom International Holdings

CITIC Telecom International Holdings' Dividend Is Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, CITIC Telecom International Holdings' dividend made up quite a large proportion of earnings but only 46% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

EPS is set to grow by 2.5% over the next year. If recent patterns in the dividend continues, the payout ratio in 12 months could be 83% which is a bit high but can definitely be sustainable.

CITIC Telecom International Holdings Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The dividend has gone from HK$0.095 in 2012 to the most recent annual payment of HK$0.23. This means that it has been growing its distributions at 9.0% per annum over that time. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.

The Dividend's Growth Prospects Are Limited

Investors could be attracted to the stock based on the quality of its payment history. Earnings have grown at around 3.2% a year for the past five years, which isn't massive but still better than seeing them shrink. There are exceptions, but limited earnings growth and a high payout ratio can signal that a company has reached maturity. When the rate of return on reinvestment opportunities falls below a certain minimum level, companies often elect to pay a larger dividend instead. This is why many mature companies often have larger dividend yields.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think CITIC Telecom International Holdings' payments are rock solid. The company has been bring in plenty of cash to cover the dividend, but we don't necessarily think that makes it a great dividend stock. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. See if management have their own wealth at stake, by checking insider shareholdings in CITIC Telecom International Holdings stock. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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