Hutchison Telecommunications Hong Kong Holdings' (HKG:215) Shareholders Will Receive A Bigger Dividend Than Last Year

Hutchison Telecommunications Hong Kong Holdings Limited (HKG:215) has announced that it will be increasing its dividend on the 3rd of September to HK$0.22, which will be 868% higher than last year. This will take the annual payment from 5.0% to 18% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for Hutchison Telecommunications Hong Kong Holdings

Hutchison Telecommunications Hong Kong Holdings Is Paying Out More Than It Is Earning

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, the company's dividend was much higher than its earnings. This situation certainly isn't ideal, and could place significant strain on the balance sheet if it continues.

Over the next year, EPS is forecast to fall by 7.1%. Assuming the dividend continues along recent trends, we believe the payout ratio could reach over 200%, which could put the dividend under pressure if earnings don't start to improve.

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$0.095 in 2011, and the most recent fiscal year payment was HK$0.075. Doing the maths, this is a decline of about 2.3% per year. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Dividend Growth Potential Is Shaky

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Over the past five years, it looks as though Hutchison Telecommunications Hong Kong Holdings' EPS has declined at around 20% a year. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.

Hutchison Telecommunications Hong Kong Holdings' Dividend Doesn't Look Great

Overall, while the dividend being raised can be good, there are some concerns about its long term sustainability. The company isn't making enough to be paying as much as it is, and the other factors don't look particularly promising either. We don't think that this is a great candidate to be an income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 3 warning signs for Hutchison Telecommunications Hong Kong Holdings (of which 1 makes us a bit uncomfortable!) you should know about. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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