CK Infrastructure Holdings (HKG:1038) Is Increasing Its Dividend To HK$0.69

CK Infrastructure Holdings Limited (HKG:1038) will increase its dividend on the 15th of September to HK$0.69, which is 1.5% higher than last year. The announced payment will take the dividend yield to 5.2%, which is in line with the average for the industry.

View our latest analysis for CK Infrastructure Holdings

CK Infrastructure Holdings' Payment Has Solid Earnings Coverage

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Before making this announcement, CK Infrastructure Holdings was paying out quite a large proportion of both earnings and cash flow, with the dividend being 238% of cash flows. Paying out such a high proportion of cash flows certainly exposes the company to cutting the dividend if cash flows were to reduce.

Looking forward, earnings per share is forecast to rise by 21.0% over the next year. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 71% which would be quite comfortable going to take the dividend forward.

CK Infrastructure Holdings Has A Solid Track Record

The company has an extended history of paying stable dividends. The dividend has gone from HK$1.33 in 2011 to the most recent annual payment of HK$2.47. This means that it has been growing its distributions at 6.4% per annum over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

Dividend Growth Is Doubtful

Investors could be attracted to the stock based on the quality of its payment history. Unfortunately things aren't as good as they seem. In the last five years, CK Infrastructure Holdings' earnings per share has shrunk at approximately 8.1% per annum. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

CK Infrastructure Holdings' Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think CK Infrastructure Holdings will make a great income stock. Although they have been consistent in the past, we think the payments are a little high to be sustained. This company is not in the top tier of income providing stocks.

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. Given that earnings are not growing, the dividend does not look nearly so attractive. Very few businesses see earnings consistently shrink year after year in perpetuity though, and so it might be worth seeing what the 11 analysts we track are forecasting for the future. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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