Kunlun Energy's (HKG:135) Dividend Will Be Increased To CN¥0.3048

Kunlun Energy Company Limited (HKG:135) has announced that it will be increasing its dividend from last year's comparable payment on the 18th of July to CN¥0.3048. Although the dividend is now higher, the yield is only 4.2%, which is below the industry average.

View our latest analysis for Kunlun Energy

Kunlun Energy's Dividend Is Well Covered By Earnings

If it is predictable over a long period, even low dividend yields can be attractive. Prior to this announcement, Kunlun Energy's dividend was comfortably covered by both cash flow and earnings. This indicates that quite a large proportion of earnings is being invested back into the business.

The next year is set to see EPS grow by 27.3%. If the dividend continues along recent trends, we estimate the payout ratio will be 39%, which is in the range that makes us comfortable with the sustainability of the dividend.

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 annual payment during the last 10 years was CN¥0.181 in 2014, and the most recent fiscal year payment was CN¥0.284. This implies that the company grew its distributions at a yearly rate of about 4.6% over that duration. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. However, Kunlun Energy has only grown its earnings per share at 2.7% per annum over the past five years. Growth of 2.7% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. This could mean the dividend doesn't have the growth potential we look for going into the future.

In Summary

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

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 instance, we've picked out 1 warning sign for Kunlun Energy that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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