Kunlun Energy Company Limited's (HKG:135) dividend is being reduced from last year's payment covering the same period to CN¥0.1609 on the 18th of July. Based on this payment, the dividend yield will be 4.3%, which is lower than the average for the industry.
Kunlun Energy's Payment Could Potentially Have Solid Earnings Coverage
The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Prior to this announcement, Kunlun Energy's dividend was comfortably covered by both cash flow and earnings. This indicates that quite a large proportion of earnings is being invested back into the business.
Looking forward, earnings per share is forecast to rise by 26.2% over the next year. If the dividend continues on this path, the payout ratio could be 43% by next year, which we think can be pretty sustainable going forward.
See our latest analysis for Kunlun Energy
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 CN¥0.16 in 2015 to the most recent total annual payment of CN¥0.303. This means that it has been growing its distributions at 6.6% per annum over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Kunlun Energy might have put its house in order since then, but we remain cautious.
The Dividend Looks Likely To Grow
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see that Kunlun Energy has been growing its earnings per share at 19% a year over the past five years. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.
We Really Like Kunlun Energy's Dividend
Overall, we think that Kunlun Energy could be a great option for a dividend investment, although we would have preferred if the dividend wasn't cut this year. The cut will allow the company to continue paying out the dividend without putting the balance sheet under pressure, which means that it could remain sustainable for longer. All of these factors considered, we think this has solid potential as a dividend stock.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 1 warning sign for Kunlun Energy that you should be aware of before investing. Is Kunlun Energy not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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