CSSC (Hong Kong) Shipping Company Limited (HKG:3877) will increase its dividend from last year's comparable payment on the 31st of July to HK$0.09. This makes the dividend yield about the same as the industry average at 7.6%.
Check out our latest analysis for CSSC (Hong Kong) Shipping
CSSC (Hong Kong) Shipping's Payment Has Solid Earnings Coverage
Unless the payments are sustainable, the dividend yield doesn't mean too much. Based on the last payment, CSSC (Hong Kong) Shipping was earning enough to cover the dividend, but free cash flows weren't positive. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.
Over the next year, EPS is forecast to expand by 32.3%. If the dividend continues along recent trends, we estimate the payout ratio will be 34%, which is in the range that makes us comfortable with the sustainability of the dividend.
CSSC (Hong Kong) Shipping Is Still Building Its Track Record
Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. Since 2019, the annual payment back then was HK$0.06, compared to the most recent full-year payment of HK$0.12. This works out to be a compound annual growth rate (CAGR) of approximately 15% a year over that time. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.
The Dividend Looks Likely To Grow
Investors could be attracted to the stock based on the quality of its payment history. CSSC (Hong Kong) Shipping has seen EPS rising for the last five years, at 16% per annum. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.
In Summary
Overall, we always like to see the dividend being raised, but we don't think CSSC (Hong Kong) Shipping will make a great income stock. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would be a touch cautious of relying on this stock primarily for the dividend income.
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. To that end, CSSC (Hong Kong) Shipping has 2 warning signs (and 1 which is a bit unpleasant) we think you should know about. 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.
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