Sinotrans' (HKG:598) Dividend Will Be CN¥0.1589

The board of Sinotrans Limited (HKG:598) has announced that it will pay a dividend of CN¥0.1589 per share on the 15th of October. This means that the annual payment will be 8.9% of the current stock price, which is in line with the average for the industry.

See our latest analysis for Sinotrans

Sinotrans' Earnings Easily Cover The Distributions

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, Sinotrans was paying only paying out a fraction of earnings, but the payment was a massive 1,561% of cash flows. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Over the next year, EPS is forecast to expand by 23.0%. Assuming the dividend continues along recent trends, we think the payout ratio could be 52% by next year, which is in a pretty sustainable range.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2014, the annual payment back then was CN¥0.05, compared to the most recent full-year payment of CN¥0.29. This means that it has been growing its distributions at 19% per annum over that time. 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.

Sinotrans May Find It Hard To Grow The Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings have grown at around 4.3% a year for the past five years, which isn't massive but still better than seeing them shrink. While growth may be thin on the ground, Sinotrans could always pay out a higher proportion of earnings to increase shareholder returns.

Our Thoughts On Sinotrans' Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While Sinotrans is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for Sinotrans 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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