Chang Hwa Commercial Bank's (TWSE:2801) Dividend Will Be NT$0.55

The board of Chang Hwa Commercial Bank, Ltd. (TWSE:2801) has announced that it will pay a dividend on the 19th of September, with investors receiving NT$0.55 per share. This means the dividend yield will be fairly typical at 3.1%.

Check out our latest analysis for Chang Hwa Commercial Bank

Chang Hwa Commercial Bank's Payment Expected To Have Solid Earnings Coverage

Unless the payments are sustainable, the dividend yield doesn't mean too much.

Having distributed dividends for at least 10 years, Chang Hwa Commercial Bank has a long history of paying out a part of its earnings to shareholders. Based on Chang Hwa Commercial Bank's last earnings report, the payout ratio is at a decent 45%, meaning that the company is able to pay out its dividend with a bit of room to spare.

If the trend of the last few years continues, EPS will grow by 1.6% over the next 12 months. If the dividend continues on this path, the future payout ratio could be 47% by next year, which we think can be pretty sustainable going forward.

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. Since 2014, the annual payment back then was NT$0.428, compared to the most recent full-year payment of NT$0.55. This means that it has been growing its distributions at 2.5% per annum over that time. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

Chang Hwa Commercial Bank May Find It Hard To Grow The Dividend

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. Chang Hwa Commercial Bank hasn't seen much change in its earnings per share over the last five years. Chang Hwa Commercial Bank is struggling to find viable investments, so it is returning more to shareholders. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.

Our Thoughts On Chang Hwa Commercial Bank's Dividend

Overall, we think Chang Hwa Commercial Bank is a solid choice as a dividend stock, even though the dividend wasn't raised this year. 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.

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

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