CLP Holdings Limited's (HKG:2) investors are due to receive a payment of HK$0.63 per share on 15th of June. This payment means that the dividend yield will be 4.0%, which is around the industry average.
CLP Holdings' Payment Has Solid Earnings Coverage
We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. At the time of the last dividend payment, CLP Holdings was paying out a very large proportion of what it was earning and 174% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.
Earnings per share is forecast to rise by 25.6% over the next year. If the dividend continues growing along recent trends, we estimate the payout ratio could reach 75%, which is on the higher side, but certainly still feasible.
CLP Holdings Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. The first annual payment during the last 10 years was HK$2.52 in 2012, and the most recent fiscal year payment was HK$3.10. This implies that the company grew its distributions at a yearly rate of about 2.1% over that duration. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.
Dividend Growth Is Doubtful
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, initial appearances might be deceiving. CLP Holdings has seen earnings per share falling at 7.8% per year over the last five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.
CLP Holdings' Dividend Doesn't Look Sustainable
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. This company is not in the top tier of income providing stocks.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for CLP Holdings that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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