The board of Hang Lung Properties Limited (HKG:101) has announced that it will pay a dividend of HK$0.12 per share on the 24th of September. This payment means that the dividend yield will be 6.6%, which is around the industry average.

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Hang Lung Properties' Future Dividend Projections Appear Well Covered By Earnings

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Prior to this announcement, the company was paying out 124% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 52%. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

The next year is set to see EPS grow by 97.4%. If the dividend continues along recent trends, we estimate the payout ratio will be 65%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

View our latest analysis for Hang Lung Properties

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$0.76, compared to the most recent full-year payment of HK$0.52. This works out to be a decline of approximately 3.7% per year over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Hang Lung Properties' Dividend Might Lack Growth

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 Lung Properties has impressed us by growing EPS at 72% per year over the past five years. Although earnings per share is up nicely Hang Lung Properties is paying out 124% of its earnings as dividends, which we feel is borderline unsustainable without extenuating circumstances.

Our Thoughts On Hang Lung Properties' Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 1 warning sign for Hang Lung Properties that investors should take into consideration. Is Hang Lung Properties not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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