COSCO SHIPPING International (Hong Kong)'s (HKG:517) Upcoming Dividend Will Be Larger Than Last Year's

COSCO SHIPPING International (Hong Kong) Co., Ltd. (HKG:517) will increase its dividend on the 25th of September to HK$0.33, which is 25% higher than last year's payment from the same period of HK$0.265. This takes the annual payment to 7.4% of the current stock price, which is about average for the industry.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that COSCO SHIPPING International (Hong Kong)'s stock price has increased by 32% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

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COSCO SHIPPING International (Hong Kong)'s Payment Could Potentially Have Solid Earnings Coverage

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Prior to this announcement, the company was paying out 99% of what it was earning. Without profits and cash flows increasing, it would be difficult for the company to continue paying the dividend at this level.

Earnings per share could rise by 22.0% over the next year if things go the same way as they have for the last few years. If recent patterns in the dividend continue, the payout ratio in 12 months could be 92% which is a bit high but can definitely be sustainable.

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

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$0.13 in 2015 to the most recent total annual payment of HK$0.48. This implies that the company grew its distributions at a yearly rate of about 14% over that duration. 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.

COSCO SHIPPING International (Hong Kong) Might Find It Hard To Grow Its Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that COSCO SHIPPING International (Hong Kong) has grown earnings per share at 22% per year over the past five years. While EPS is growing rapidly, COSCO SHIPPING International (Hong Kong) paid out a very high 99% of its income as dividends. If earnings continue to grow, this dividend may be sustainable, but we think a payout this high definitely bears watching.

COSCO SHIPPING International (Hong Kong)'s Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think COSCO SHIPPING International (Hong Kong)'s payments are rock solid. In general, the distributions are a little bit higher than we would like, but we can't ignore the fact the quickly growing earnings gives this stock great potential in the future. Overall, we don't think this company has the makings of a good 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. As an example, we've identified 1 warning sign for COSCO SHIPPING International (Hong Kong) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.