Hong Kong Shanghai Alliance Holdings Limited's (HKG:1001) dividend is being reduced from last year's payment covering the same period to HK$0.01 on the 13th of September. However, the dividend yield of 9.6% is still a decent boost to shareholder returns.
Check out our latest analysis for Hong Kong Shanghai Alliance Holdings
Hong Kong Shanghai Alliance Holdings' Payment Has Solid Earnings Coverage
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. However, prior to this announcement, Hong Kong Shanghai Alliance Holdings' dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.
Over the next year, EPS could expand by 41.6% if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could be 12% by next year, which is in a pretty sustainable range.
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 HK$0.066 in 2014 to the most recent total annual payment of HK$0.025. Doing the maths, this is a decline of about 9.3% per year. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.
The Dividend Looks Likely To Grow
Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Hong Kong Shanghai Alliance Holdings has seen EPS rising for the last five years, at 42% per annum. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.
Hong Kong Shanghai Alliance Holdings Looks Like A Great Dividend Stock
It is generally not great to see the dividend being cut, but we don't think this should happen much if at all in the future given that Hong Kong Shanghai Alliance Holdings has the makings of a solid income stock moving forward. By reducing the dividend, pressure will be taken off the balance sheet, which could help the dividend to be consistent in the future. Taking this all into consideration, this looks like it could be a good dividend opportunity.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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 identified 3 warning signs for Hong Kong Shanghai Alliance Holdings (1 is a bit concerning!) that you should be aware of before investing. Is Hong Kong Shanghai Alliance Holdings not quite the opportunity you were looking for? Why not check out our selection of top 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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