The board of Hang Seng Bank Limited (HKG:11) has announced that it will pay a dividend on the 27th of March, with investors receiving HK$3.20 per share. This means the annual payment will be 6.4% of the current stock price, which is lower than the industry average.
View our latest analysis for Hang Seng Bank
Hang Seng Bank's Earnings Will Easily Cover The Distributions
While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible.
Hang Seng Bank has a long history of paying out dividends, with its current track record at a minimum of 10 years. Past distributions do not necessarily guarantee future ones, but Hang Seng Bank's payout ratio of 73% is a good sign as this means that earnings decently cover dividends.
Over the next 3 years, EPS is forecast to expand by 6.4%. Analysts estimate the future payout ratio will be 72% over the same time period, which is in the range that makes us comfortable with the sustainability of the dividend.
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 annual payment during the last 10 years was HK$5.50 in 2015, and the most recent fiscal year payment was HK$6.80. This implies that the company grew its distributions at a yearly rate of about 2.1% over that duration. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.
Dividend Growth May Be Hard To Come By
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, Hang Seng Bank's earnings per share has shrunk at approximately 6.0% 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. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.
In Summary
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While Hang Seng Bank is earning enough to cover the dividend, we are generally unimpressed with its future prospects. We would be a touch cautious of relying on this stock primarily for the dividend income.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 1 warning sign for Hang Seng Bank that investors should know about before committing capital to this stock. Is Hang Seng Bank 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.