Chengdu Expressway (HKG:1785) Is Increasing Its Dividend To HK$0.15

Chengdu Expressway Co., Ltd. (HKG:1785) will increase its dividend on the 9th of August to HK$0.15. Based on the announced payment, the dividend yield for the company will be 6.6%, which is fairly typical for the industry.

See our latest analysis for Chengdu Expressway

Chengdu Expressway's Payment Has Solid Earnings Coverage

Unless the payments are sustainable, the dividend yield doesn't mean too much. Before making this announcement, Chengdu Expressway was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.

Looking forward, earnings per share could rise by 11.0% over the next year if the trend from the last few years continues. If the dividend continues along recent trends, we estimate the payout ratio will be 33%, which is in the range that makes us comfortable with the sustainability of the dividend.

Chengdu Expressway Is Still Building Its Track Record

Looking back, the dividend has been stable, but the company hasn't been paying a dividend for very long so we can't be confident that the dividend will remain stable through all economic environments. The first annual payment during the last 2 years was CN¥0.13 in 2019, and the most recent fiscal year payment was CN¥0.12. Doing the maths, this is a decline of about 3.5% per year. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. We are encouraged to see that Chengdu Expressway has grown earnings per share at 11% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Chengdu Expressway's prospects of growing its dividend payments in the future.

We Really Like Chengdu Expressway's Dividend

Overall, a dividend increase is always good, and we think that Chengdu Expressway is a strong income stock thanks to its track record and growing earnings. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 2 warning signs for Chengdu Expressway that investors should take into consideration. We have also put together a list of global stocks with a solid dividend.

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