Angang Steel Company Limited’s (HKG: 347) the dividend will increase to HK $ 0.10 on June 30. Based on the announced payment, the dividend yield for the company will be 2.0%, which is fairly typical for the industry.
While the dividend yield is important for income investors, it is also important to consider any significant change in the price of the shares, as it will generally outweigh any gains from distributions. Investors will be happy to see that Angang Steel’s share price has risen 41% in the past 3 months, which is good for shareholders and may also explain a drop in dividend yield.
Check out our latest analysis for Angang Steel
Angang Steel’s income easily covers distributions
Strong dividend yields are great, but they only really help us if the payout is sustainable. However, prior to this announcement, Angang Steel’s dividend was comfortably covered by cash flow and earnings. This means that most of its profits are kept to grow the business.
Next year is expected to see EPS increase by 84.5%. If the dividend continues according to recent trends, we estimate that the payout ratio will be 18%, which is within the range that makes us comfortable with the sustainability of the dividend.
The company’s dividend history has been marked by instability, with at least one cut in the past 10 years. The dividend went from CNY 0.12 in 2011 to the last annual payment of CNY 0.084. If you do the math, that’s about a 3.1% drop per year. A business that decreases its dividend over time is usually not what we are looking for.
The dividend is expected to increase
Growth in earnings per share could be a mitigating factor considering past dividend fluctuations. Angang Steel has seen BPA increase over the past five years, at 16% per year. With decent growth and a low payout rate, we think this bodes well for Angang Steel’s prospects of increasing its dividend payouts going forward.
Angang Steel looks like a big dividend
Overall, a rise in dividends is always good, and we think Angang Steel is a solid income stock thanks to its track record and growing earnings. Profits easily cover distributions and the company generates a lot of cash. All of these factors taken into account, we believe this has strong potential as a dividend-paying stock.
Market movements attest to the high value of a coherent dividend policy compared to a more unpredictable policy. However, there are other things for investors to consider when analyzing the performance of stocks. Taking the debate a little further, we have identified 2 warning signs for Angang Steel that investors need to be aware of moving forward. If you are a dividend investor, you can also view our organized list of high performing dividend stocks.
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