SmarTone Telecommunications Holdings (HKG:315) Will Pay A Larger Dividend Than Last Year At HK$0.15

By
Simply Wall St
Published
October 02, 2021
SEHK:315
Source: Shutterstock

SmarTone Telecommunications Holdings Limited (HKG:315) has announced that it will be increasing its dividend on the 19th of November to HK$0.15, which will be 3.3% higher than last year. This will take the annual payment from 6.8% to 6.8% of the stock price, which is above what most companies in the industry pay.

View our latest analysis for SmarTone Telecommunications Holdings

SmarTone Telecommunications Holdings' Payment Has Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. The last payment made up 75% of earnings, but cash flows were much higher. 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.

EPS is set to fall by 17.0% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could reach 80%, which is definitely on the higher side.

historic-dividend
SEHK:315 Historic Dividend October 3rd 2021

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. Since 2011, the dividend has gone from HK$0.62 to HK$0.30. Doing the maths, this is a decline of about 7.0% 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.

The Dividend Has Limited Growth Potential

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. SmarTone Telecommunications Holdings' earnings per share has shrunk at 12% a year over the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.

Our Thoughts On SmarTone Telecommunications Holdings' Dividend

Overall, we always like to see the dividend being raised, but we don't think SmarTone Telecommunications Holdings will make a great income stock. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We don't think SmarTone Telecommunications Holdings is a great stock to add to your portfolio if income is your focus.

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. Just as an example, we've come across 2 warning signs for SmarTone Telecommunications Holdings you should be aware of, and 1 of them doesn't sit too well with us. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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