China Merchants Port Holdings' (HKG:144) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of China Merchants Port Holdings Company Limited (HKG:144) has announced that it will be increasing its dividend on the 22nd of July to HK$0.72. This takes the annual payment to 6.6% of the current stock price, which is about average for the industry.

View our latest analysis for China Merchants Port Holdings

China Merchants Port Holdings' 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 Merchants Port Holdings' 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 fall by 7.5% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 46%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The first annual payment during the last 10 years was HK$1.08 in 2012, and the most recent fiscal year payment was HK$0.94. The dividend has shrunk at around 1.4% a year during that period. A company that decreases its dividend over time generally isn't what we are looking for.

Dividend Growth May Be Hard To Achieve

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings has been rising at 4.7% per annum over the last five years, which admittedly is a bit slow. Growth of 4.7% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. While this isn't necessarily a negative, it definitely signals that dividend growth could be constrained in the future unless earnings start to pick up again.

Our Thoughts On China Merchants Port Holdings' Dividend

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

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. Just as an example, we've come across 3 warning signs for China Merchants Port Holdings you should be aware of, and 1 of them is potentially serious. Is China Merchants Port Holdings not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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