COSCO SHIPPING International (Hong Kong) Co., Ltd.'s (HKG:517) investors are due to receive a payment of HK$0.215 per share on 25th of June. This will take the dividend yield to an attractive 9.7%, providing a nice boost to shareholder returns.
Estimates Indicate COSCO SHIPPING International (Hong Kong)'s Could Struggle to Maintain Dividend Payments In The Future
If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, the company's dividend was much higher than its earnings. It will be difficult to sustain this level of payout so we wouldn't be confident about this continuing.
Earnings per share could rise by 17.5% over the next year if things go the same way as they have for the last few years. If the dividend continues on its recent course, the payout ratio in 12 months could be 96%, which is a bit high and could start applying pressure to the balance sheet.
View our latest analysis for COSCO SHIPPING International (Hong Kong)
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2015, the annual payment back then was HK$0.055, compared to the most recent full-year payment of HK$0.48. This implies that the company grew its distributions at a yearly rate of about 24% over that duration. 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.
COSCO SHIPPING International (Hong Kong) Might Find It Hard To Grow Its Dividend
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. It's encouraging to see that COSCO SHIPPING International (Hong Kong) has been growing its earnings per share at 18% a year over the past five years. However, the company isn't reinvesting a lot back into the business, so we would expect the growth rate to slow down somewhat in the future.
COSCO SHIPPING International (Hong Kong)'s Dividend Doesn't Look Sustainable
In summary, while it's always good to see the dividend being raised, we don't think COSCO SHIPPING International (Hong Kong)'s payments are rock solid. Strong earnings growth means COSCO SHIPPING International (Hong Kong) has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. We would be a touch cautious of relying on this stock primarily for the dividend income.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 1 warning sign for COSCO SHIPPING International (Hong Kong) that investors should take into consideration. 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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