China Telecom (HKG:728) Will Pay A Larger Dividend Than Last Year At CN¥0.1823

China Telecom Corporation Limited (HKG:728) has announced that it will be increasing its dividend from last year's comparable payment on the 18th of October to CN¥0.1823. Based on this payment, the dividend yield for the company will be 5.4%, which is fairly typical for the industry.

View our latest analysis for China Telecom

China Telecom's Payment Has Solid Earnings Coverage

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Prior to this announcement, China Telecom's dividend was comfortably covered by both cash flow and earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

Looking forward, earnings per share is forecast to rise by 23.6% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 73%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2014, the annual payment back then was CN¥0.0749, compared to the most recent full-year payment of CN¥0.233. This works out to be a compound annual growth rate (CAGR) of approximately 12% a year over that time. China Telecom has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

We Could See China Telecom's Dividend Growing

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. China Telecom has seen EPS rising for the last five years, at 5.7% per annum. The company is paying a reasonable amount of earnings to shareholders, and is growing earnings at a decent rate so we think it could be a decent dividend stock.

Our Thoughts On China Telecom's Dividend

Overall, this is a reasonable dividend, and it being raised is an added bonus. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 1 warning sign for China Telecom that investors should take into consideration. 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.