COSCO SHIPPING International (Hong Kong) (HKG:517) Has Announced That Its Dividend Will Be Reduced To HK$0.09

COSCO SHIPPING International (Hong Kong) Co., Ltd. (HKG:517) has announced it will be reducing its dividend payable on the 28th of June to HK$0.09. However, the dividend yield of 8.3% still remains in a typical range for the industry.

Check out our latest analysis for COSCO SHIPPING International (Hong Kong)

COSCO SHIPPING International (Hong Kong) Doesn't Earn Enough To Cover Its Payments

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Based on the last payment, COSCO SHIPPING International (Hong Kong)'s profits didn't cover the dividend, but the company was generating enough cash instead. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

Over the next year, EPS could expand by 4.0% if the company continues along the path it has been on recently. However, if the dividend continues growing along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 105% over the next year.

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. Since 2012, the dividend has gone from HK$0.05 to HK$0.19. This implies that the company grew its distributions at a yearly rate of about 14% over that duration. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend's Growth Prospects Are Limited

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings have grown at around 4.0% a year for the past five years, which isn't massive but still better than seeing them shrink. The company is paying out a lot of its profits, even though it is growing those profits pretty slowly. As they say in finance, 'past performance is not indicative of future performance', but we are not confident a company with limited earnings growth and a high payout ratio will be a star dividend-payer over the next decade.

In Summary

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 2 warning signs for COSCO SHIPPING International (Hong Kong) that investors need to be conscious of moving forward. Is COSCO SHIPPING International (Hong Kong) 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.