China Mobile Limited (HKG:941) has recently announced an increase in its dividend, bumping it up to CN¥2.60 per share, which brings the yield to an impressive 6.4%, significantly exceeding the industry average. This move has naturally attracted attention from investors who are always on the lookout for reliable income sources, particularly in a low-interest-rate environment. However, beneath the headline number, several factors warrant a deeper dive to understand what this decision really means for the sustainability of China Mobile’s dividend in the long term.
While the increased dividend yield is certainly appealing, questions arise about the sustainability of these payments. Historically, China Mobile has allocated a staggering 95% of its cash flow to dividends, a level that raises alarm bells about vulnerability to potential cuts if cash flows were to diminish. This high payout ratio indicates that even minor fluctuations in cash flow or earnings could exert significant pressure on the company’s ability to maintain its dividend payments. However, it’s worth noting that earnings per share (EPS) are projected to grow by 11.0% in the upcoming year, which could help in stabilizing the payout ratio at around 76%. Although still high, this ratio is within a feasible range, suggesting that the company might manage to sustain its dividend if the projected earnings materialize.
Historical Performance and Growth
One of the key reasons why investors have flocked to China Mobile is its robust track record of stable and incrementally growing dividends. Since 2014, the company has consistently raised its annual dividend from CN¥2.63 to CN¥4.41, reflecting a compound annual growth rate (CAGR) of about 5.3%. This steady increase in dividend payments has made China Mobile an attractive option for income-focused investors. The company’s robust historical performance in dividend distribution has been a crucial factor in maintaining investor confidence, especially in a market where consistency can often make or break investment decisions.
However, while the historical performance paints a picture of a stable dividend payer, it’s essential to look at the underlying growth metrics to gauge future prospects. Over the past five years, China Mobile has experienced modest earnings growth, averaging just 3.7% annually. Such a growth rate is relatively slow and could be indicative of a mature company that favors returning cash to shareholders rather than reinvesting it for business expansion. This approach might limit future growth prospects but appeals to investors who prioritize immediate returns over long-term capital appreciation. The blend of stable dividends and modest growth rates paints a mixed picture, compelling potential investors to weigh the benefits against the inherent risks.
Investor Caution and Future Outlook
China Mobile Limited (HKG:941) recently announced a dividend increase to CN¥2.60 per share, raising its yield to an impressive 6.4%, well above the industry average. This move has caught the eye of investors seeking stable income, especially in a low-interest-rate environment. However, to grasp the full picture, it’s crucial to delve deeper into the sustainability of China Mobile’s dividend in the long run.
While the higher dividend yield is attractive, there are concerns about long-term sustainability. Historically, China Mobile has allocated 95% of its cash flow to dividends, a figure that suggests potential vulnerability to cuts if cash flow decreases. This high payout ratio means that even small changes in cash flow or earnings could significantly impact the company’s ability to maintain its dividend. However, it’s promising that earnings per share (EPS) are expected to grow by 11.0% in the coming year. This growth could help stabilize the payout ratio around 76%, which, although high, is within a manageable range. If these projected earnings materialize, China Mobile may be able to sustain its dividend payments.
