HK Electric Investments and HK Electric Investments Limited (HKG:2638) has announced that it will pay a dividend of HK$0.1594 per share on the 8th of September. This payment means that the dividend yield will be 5.2%, which is around the industry average.

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HK Electric Investments and HK Electric Investments' Future Dividend Projections Appear Well Covered By Earnings

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. At the time of the last dividend payment, HK Electric Investments and HK Electric Investments was paying out a very large proportion of what it was earning and 119% of cash flows. Paying out such a high proportion of cash flows certainly exposes the company to cutting the dividend if cash flows were to reduce.

Over the next year, EPS is forecast to expand by 8.7%. If the dividend continues along recent trends, we estimate the payout ratio could reach 80%, which is on the higher side, but certainly still feasible.

View our latest analysis for HK Electric Investments and HK Electric Investments

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 dividend has gone from HK$0.398 total annually to HK$0.32. This works out to be a decline of approximately 2.1% per year over that time. A company that decreases its dividend over time generally isn't what we are looking for.

HK Electric Investments and HK Electric Investments Could Grow Its Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. HK Electric Investments and HK Electric Investments has seen EPS rising for the last five years, at 5.4% per annum. Past earnings growth has been decent, but unless this is one of those rare businesses that can grow without additional capital investment or marketing spend, we'd generally expect the higher payout ratio to limit its future growth prospects.

The Dividend Could Prove To Be Unreliable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about HK Electric Investments and HK Electric Investments' payments, as there could be some issues with sustaining them into the future. The payments are bit high to be considered sustainable, and the track record isn't the best. This company is not in the top tier of income providing stocks.

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. Case in point: We've spotted 2 warning signs for HK Electric Investments and HK Electric Investments (of which 1 shouldn't be ignored!) you should know about. Is HK Electric Investments and HK Electric Investments not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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