HKT Trust and HKT (HKG:6823) Will Pay A Larger Dividend Than Last Year At HK$0.42

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. This makes the dividend yield about the same as the industry average at 6.7%.

View our latest analysis for HKT Trust and HKT

HKT Trust and HKT Doesn't Earn Enough To Cover Its Payments

We aren't too impressed by dividend yields unless they can be sustained over time. Before making this announcement, HKT Trust and HKT's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

Earnings per share is forecast to rise by 2.0% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could reach 118%, which probably can't continue putting some pressure on the balance sheet.

HKT Trust and HKT Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2012, the first annual payment was HK$0.034, compared to the most recent full-year payment of HK$0.73. This implies that the company grew its distributions at a yearly rate of about 36% over that duration. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

The Dividend's Growth Prospects Are Limited

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Let's not jump to conclusions as things might not be as good as they appear on the surface. 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.

Our Thoughts On HKT Trust and HKT's Dividend

In summary, while it's always good to see the dividend being raised, we don't think HKT Trust and HKT's payments are rock solid. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. Overall, we don't think this company has the makings of a good income stock.

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. As an example, we've identified 2 warning signs for HKT Trust and HKT that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection 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.