Sichuan Expressway (HKG:107) Is Paying Out A Larger Dividend Than Last Year

Sichuan Expressway Company Limited (HKG:107) has announced that it will be increasing its dividend on the 14th of July to HK$0.13. Based on the announced payment, the dividend yield for the company will be 6.2%, which is fairly typical for the industry.

Check out our latest analysis for Sichuan Expressway

Sichuan Expressway's Dividend Is Well Covered By Earnings

We aren't too impressed by dividend yields unless they can be sustained over time. Sichuan Expressway is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Looking forward, earnings per share could rise by 14.3% over the next year if the trend from the last few years continues. Assuming the dividend continues along recent trends, we think the payout ratio could be 20% by next year, which is in a pretty sustainable range.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The first annual payment during the last 10 years was CN¥0.09 in 2012, and the most recent fiscal year payment was CN¥0.11. This implies that the company grew its distributions at a yearly rate of about 2.0% over that duration. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Sichuan Expressway has impressed us by growing EPS at 14% per year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Sichuan Expressway's payments are rock solid. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Sichuan Expressway has 2 warning signs (and 1 which shouldn't be ignored) we think you should know about. Is Sichuan Expressway not quite the opportunity you were looking for? Why not check out our selection of top 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.