The board of HKT Trust and HKT Limited (HKG:6823) has announced that it will be increasing its dividend on the 31st of May to HK$0.42. The announced payment will take the dividend yield to 6.5%, which is in line with the average for the industry.
HKT Trust and HKT Doesn't Earn Enough To Cover Its Payments
We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Prior to this announcement, the company was paying out 115% of what it was earning. Without profits and cash flows increasing, it would be difficult for the company to continue paying the dividend at this level.
Over the next year, EPS is forecast to expand by 2.1%. If the dividend continues on its recent course, the payout ratio in 12 months could be 118%, which is a bit high and could start applying pressure to the balance sheet.
HKT Trust and HKT Has A Solid Track Record
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2012, the dividend has gone from HK$0.034 to HK$0.73. This implies that the company grew its distributions at a yearly rate of about 36% over that duration. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.
HKT Trust and HKT May Find It Hard To Grow The Dividend
Investors could be attracted to the stock based on the quality of its payment history. However, initial appearances might be deceiving. Unfortunately, HKT Trust and HKT's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year.
The Dividend Could Prove To Be Unreliable
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. Although they have been consistent in the past, we think the payments are a little high to be sustained. This company is not in the top tier of income providing stocks.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 2 warning signs for HKT Trust and HKT (1 is a bit concerning!) that you should be aware of before investing. 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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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.