COSCO SHIPPING International (Hong Kong) (HKG:517) Will Pay A Larger Dividend Than Last Year At HK$0.115

COSCO SHIPPING International (Hong Kong) Co., Ltd. (HKG:517) will increase its dividend from last year's comparable payment on the 28th of June to HK$0.115. This takes the dividend yield to 9.0%, which shareholders will be pleased with.

View our latest analysis for COSCO SHIPPING International (Hong Kong)

COSCO SHIPPING International (Hong Kong) Is Paying Out More Than It Is Earning

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, the company was paying out 99% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only . Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

Over the next year, EPS could expand by 0.1% if the company continues along the path it has been on recently. If the dividend continues on its recent course, the payout ratio in 12 months could be 105%, which is a bit high and could start applying pressure to the balance sheet.

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 annual payment during the last 10 years was HK$0.09 in 2013, and the most recent fiscal year payment was HK$0.225. This means that it has been growing its distributions at 9.6% per annum over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

The Dividend's Growth Prospects Are Limited

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. However, COSCO SHIPPING International (Hong Kong)'s EPS was effectively flat over the past five years, which could stop the company from paying more every year. So the company has struggled to grow its EPS yet it's still paying out 99% of its earnings. Limited recent earnings growth and a high payout ratio makes it hard for us to envision strong future dividend growth, unless the company should have substantial pricing power or some form of competitive advantage.

In Summary

Overall, we always like to see the dividend being raised, but we don't think COSCO SHIPPING International (Hong Kong) will make a great income stock. 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.

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. For example, we've picked out 1 warning sign for COSCO SHIPPING International (Hong Kong) that investors should know about before committing capital to this stock. 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.