Kunlun Energy (HKG:135) Has Announced That Its Dividend Will Be Reduced To HK$0.25

Kunlun Energy Company Limited (HKG:135) is reducing its dividend to HK$0.25 on the 14th of July. This means that the annual payment will be 3.8% of the current stock price, which is in line with the average for the industry.

See our latest analysis for Kunlun Energy

Kunlun Energy's Payment Has Solid Earnings Coverage

We aren't too impressed by dividend yields unless they can be sustained over time. However, prior to this announcement, Kunlun Energy's dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.

The next year is set to see EPS grow by 12.2%. Assuming the dividend continues along recent trends, we think the payout ratio could be 44% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. Since 2012, the first annual payment was CN¥0.18, compared to the most recent full-year payment of CN¥0.21. This means that it has been growing its distributions at 1.7% per annum over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

The Dividend Looks Likely To Grow

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. Kunlun Energy has impressed us by growing EPS at 48% per year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

Kunlun Energy Looks Like A Great Dividend Stock

It is generally not great to see the dividend being cut, but we don't think this should happen much if at all in the future given that Kunlun Energy has the makings of a solid income stock moving forward. By reducing the dividend, pressure will be taken off the balance sheet, which could help the dividend to be consistent in the future. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for Kunlun Energy that investors should know about before committing capital to this stock. Is Kunlun Energy not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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