Shenzhen International Holdings' (HKG:152) Dividend Will Be Increased To HK$0.598

Shenzhen International Holdings Limited (HKG:152) will increase its dividend from last year's comparable payment on the 20th of June to HK$0.598. The payment will take the dividend yield to 7.5%, which is in line with the average for the industry.

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Shenzhen International Holdings' Future Dividend Projections Appear Well Covered By Earnings

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Prior to this announcement, Shenzhen International Holdings' earnings easily covered the dividend, but free cash flows were negative. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.

EPS is set to fall by 3.0% over the next 12 months. Assuming the dividend continues along recent trends, we believe the payout ratio could be 50%, which we are pretty comfortable with and we think is feasible on an earnings basis.

View our latest analysis for Shenzhen International Holdings

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of HK$0.374 in 2015 to the most recent total annual payment of HK$0.598. This works out to be a compound annual growth rate (CAGR) of approximately 4.8% a year over that time. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

The Dividend Has Limited Growth Potential

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Over the past five years, it looks as though Shenzhen International Holdings' EPS has declined at around 13% a year. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.

Shenzhen International Holdings' Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think Shenzhen International Holdings will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 2 warning signs for Shenzhen International Holdings (of which 1 makes us a bit uncomfortable!) you should know about. 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.