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. The dividend yield will be in the average range for the industry at 8.3%.
COSCO SHIPPING International (Hong Kong) Is Paying Out More Than It Is Earning
We aren't too impressed by dividend yields unless they can be sustained over time. Before making this announcement, the company's dividend was much higher than its earnings. It will be difficult to sustain this level of payout so we wouldn't be confident about this continuing.
EPS is set to grow by 4.0% over the next year if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could reach 105%, which probably can't continue without starting to put some pressure on the balance sheet.
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 first annual payment during the last 10 years was HK$0.05 in 2012, and the most recent fiscal year payment was HK$0.19. This means that it has been growing its distributions at 14% per annum over that time. COSCO SHIPPING International (Hong Kong) has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.
Dividend Growth May Be Hard To Achieve
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Earnings per share has been crawling upwards at 4.0% per year. So the company has struggled to grow its EPS yet it's still paying out 101% of its earnings. This gives limited room for the company to raise the dividend in the future.
COSCO SHIPPING International (Hong Kong)'s Dividend Doesn't Look Sustainable
In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The payments are bit high to be considered sustainable, and the track record isn't the best. We don't think COSCO SHIPPING International (Hong Kong) is a great stock to add to your portfolio if income is your focus.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, COSCO SHIPPING International (Hong Kong) has 2 warning signs (and 1 which is concerning) we think you should know about. Is COSCO SHIPPING International (Hong Kong) not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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.