China Taiping Insurance Holdings Company Limited (HKG:966) will increase its dividend from last year's comparable payment on the 23rd of July to HK$0.30. This takes the annual payment to 3.8% of the current stock price, which unfortunately is below what the industry is paying.
Check out our latest analysis for China Taiping Insurance Holdings
China Taiping Insurance Holdings' Payment Has Solid Earnings Coverage
While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. However, China Taiping Insurance Holdings' earnings easily cover the dividend. This means that most of its earnings are being retained to grow the business.
Over the next year, EPS is forecast to expand by 61.3%. If the dividend continues on this path, the payout ratio could be 15% by next year, which we think can be pretty sustainable going forward.
China Taiping Insurance Holdings' Dividend Has Lacked Consistency
It's comforting to see that China Taiping Insurance Holdings has been paying a dividend for a number of years now, however it has been cut at least once in that time. This suggests that the dividend might not be the most reliable. Since 2017, the annual payment back then was HK$0.10, compared to the most recent full-year payment of HK$0.30. This means that it has been growing its distributions at 17% per annum over that time. China Taiping Insurance Holdings has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.
Dividend Growth May Be Hard To Achieve
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. In the last five years, China Taiping Insurance Holdings' earnings per share has shrunk at approximately 4.1% per annum. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.
Our Thoughts On China Taiping Insurance Holdings' Dividend
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would probably look elsewhere for an income investment.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for China Taiping Insurance Holdings that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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