The board of Hang Seng Bank Limited (HKG:11) has announced that it will pay a dividend on the 5th of June, with investors receiving HK$1.30 per share. Although the dividend is now higher, the yield is only 6.3%, which is below the industry average.
Hang Seng Bank's Dividend Forecasted To Be Well Covered By Earnings
Even a low dividend yield can be attractive if it is sustained for years on end.
Having distributed dividends for at least 10 years, Hang Seng Bank has a long history of paying out a part of its earnings to shareholders. Based on Hang Seng Bank's last earnings report, the payout ratio is at a decent 73%, meaning that the company is able to pay out its dividend with a bit of room to spare.
The next 3 years are set to see EPS grow by 4.2%. Analysts forecast the future payout ratio could be 72% over the same time horizon, which is a number we think the company can maintain.
View our latest analysis for Hang Seng Bank
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$5.60, compared to the most recent full-year payment of HK$6.80. This implies that the company grew its distributions at a yearly rate of about 2.0% 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 Is Doubtful
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. Hang Seng Bank has seen earnings per share falling at 6.0% per year over the last five years. 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 Hang Seng Bank's Dividend
In summary, while it's always good to see the dividend being raised, we don't think Hang Seng Bank's payments are rock solid. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Hang Seng Bank has been making. We would probably look elsewhere for an income investment.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular 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 Hang Seng Bank that you should be aware of before investing. 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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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.