SmarTone Telecommunications Holdings Limited (HKG: 315) announced that it will increase its dividend on November 19 to HK $ 0.15, 3.3% more than last year. This will bring the annual payout from 6.8% to 6.8% of the share price, which is higher than what most companies in the industry pay.
Check out our latest review for SmarTone Telecommunications Holdings
SmarTone Telecommunications Holdings payout has strong earnings coverage
While it’s great to have a strong dividend yield, we also need to determine if the payout is sustainable. The last payment was 75% of the profits, but the cash flow was much higher. In general, cash flow is more important than earnings, so we are confident that the dividend will be sustainable in the future, especially with so much cash left for reinvestment.
EPS is expected to decline 17.0% over the next 12 months. Assuming the dividend continues according to recent trends, we think the payout ratio could reach 80%, which is definitely on the higher side.
While the company has been paying a dividend for a long time, it has reduced the dividend at least once in the past 10 years. Since 2011, the dividend has increased from HK $ 0.62 to HK $ 0.30. When you do the math, this is a decrease of about 7.0% per year. In general, we don’t like to see a dividend that declines over time, as this can degrade shareholder returns and indicate that the company may be in trouble.
The dividend has limited growth potential
Since the track record hasn’t been stellar, we really want to see earnings per share increase over time. SmarTone Telecommunications Holdings’ earnings per share have declined 12% per year over the past five years. Dividend payments are likely to come under some pressure unless EPS can get out of the slump it is in.
Our thoughts on the dividend of SmarTone Telecommunications Holdings
Overall, we still like to see the dividend go up, but we don’t think SmarTone Telecommunications Holdings will be a great income security. The company generates a lot of cash, which could hold the dividend for a while, but the track record is not great. We don’t think SmarTone Telecommunications Holdings is a great stock to add to your portfolio if income is your goal.
Companies with a stable dividend policy are likely to benefit from greater investor interest than those with a more inconsistent approach. Still, there are a host of other factors that investors need to consider, aside from dividend payments, when analyzing a business. As an example, we have met 2 warning signs for SmarTone Telecommunications Holdings you should be aware of it, and one of them doesn’t suit us very well. If you are a dividend investor, you can also view our curated list of high performing dividend stocks.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.
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