SmarTone Telecommunications Holdings (HKG:315) Has Announced That It Will Be Increasing Its Dividend To HK$0.15

The board of SmarTone Telecommunications Holdings Limited (HKG:315) has announced that it will be increasing its dividend by 3.3% on the 19th of November to HK$0.15. This takes the dividend yield from 6.7% to 6.7%, which shareholders will be pleased with.

See our latest analysis for SmarTone Telecommunications Holdings

SmarTone Telecommunications Holdings' Payment Has Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before this announcement, SmarTone Telecommunications Holdings was paying out 75% of earnings, but a comparatively small 21% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

Looking forward, earnings per share is forecast to fall by 17.0% over the next year. If recent patterns in the dividend continue, we could see the payout ratio reaching 82% in the next 12 months, which is on the higher end of the range we would say is sustainable.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from HK$0.62 in 2011 to the most recent annual payment of HK$0.30. Doing the maths, this is a decline of about 7.0% per year. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Dividend Has Limited Growth Potential

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. Earnings per share has been sinking by 12% over the last five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 2 warning signs for SmarTone Telecommunications Holdings you should be aware of, and 1 of them can't be ignored. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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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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