China Container Terminal (TWSE:2613) Has Announced That Its Dividend Will Be Reduced To NT$0.60

China Container Terminal Corporation (TWSE:2613) is reducing its dividend to NT$0.60 on the 12th of Aprilwhich is 43% less than last year's comparable payment of NT$1.05. The yield is still above the industry average at 4.6%.

View our latest analysis for China Container Terminal

China Container Terminal Doesn't Earn Enough To Cover Its Payments

If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last payment, China Container Terminal's profits didn't cover the dividend, but the company was generating enough cash instead. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

If the company can't turn things around, EPS could fall by 5.9% over the next year. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 154%, which is definitely a bit high to be 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. The dividend has gone from an annual total of NT$0.13 in 2014 to the most recent total annual payment of NT$1.05. This works out to be a compound annual growth rate (CAGR) of approximately 23% a year over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

Dividend Growth Is Doubtful

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. In the last five years, China Container Terminal's earnings per share has shrunk at approximately 5.9% per annum. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.

The Dividend Could Prove To Be Unreliable

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 3 warning signs for China Container Terminal that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.