Last update on 2024-06-27

Sun Hung Kai Properties (SHG.F) - Dividend Analysis (Final Score: 5/8)

Analyze the stability and performance of Sun Hung Kai Properties (SHG.F) dividend policy with a comprehensive 8-criteria system. Final Score: 5/8.

Short Analysis - Dividend Score: 5

We're running Sun Hung Kai Properties (SHG.F) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

The analysis scores Sun Hung Kai Properties (SHG.F) based on an 8-criteria system to evaluate the company's dividend performance and stability. SHG.F has a strong dividend yield significantly higher than the industry average, at 5.9948% compared to 2.99%. However, it has demonstrated fluctuation and occasional missing dividends over the last 20 years, despite an average annual growth rate of around 10.33%. The payout ratio has consistently been below the 65% threshold, averaging 38.97%, indicating sustainable dividend payments, although there was a spike to 98.067% in 2022, which warrants investigation. The company's dividends are generally covered by earnings and have shown a moderate-to-good position overall. However, its coverage by cash flow has been volatile, although recent years have shown decent ratios. While SHG.F has shown steady dividend growth from 2003 to 2022, 2023 experienced a drastic dividend cut. The company falls short of the 25-year dividend payment history, and lacks consistent stock repurchase practices, only buying back shares significantly in 2005.

Insights for Value Investors Seeking Stable Income

Sun Hung Kai Properties (SHG.F) offers a high dividend yield, and its payout ratio suggests sustainability in the long term. Despite some volatility in dividend growth, earnings coverage, and cash flow, recent trends are promising. However, the sharp dividend cut in 2023 and lack of consistent stock repurchases may cause concern for income-focused investors. It's worth keeping an eye on, but be cautious and consider the company's financial stability and future prospects before investing.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

The dividend yield indicates how much a company pays out in dividends each year relative to its stock price. A high dividend yield may indicate a good investment opportunity.

Sun Hung Kai Properties (SHG.F) has a dividend yield of 5.9948% in 2023, which is significantly higher than the industry average of 2.99%. This suggests that the company is providing a higher return to its shareholders in the form of dividends compared to its peers. Over the last 20 years, Sun Hung Kai’s dividend yield has generally been below 5%, with notable spikes in 2008 (3.9223%), 2016 (3.912%), 2020 (5.1172%), 2021 (5.2436%), and especially in 2022 (8.2618%). These instances often coincided with global financial turbulence or company-specific factors. The industry average, conversely, has seen extreme volatility, peaking dramatically in 2008 (63.42%) but generally remained below 5% as well. Considering Sun Hung Kai's higher and more stable dividend yield, it appears positioned as a relatively dependable dividend payer, especially in recent years where it has consistently exceeded the industry average. This trend is generally good for investors seeking stable income.

Average annual Growth Rate higher than 5% in the last 20 years?

The Dividend Growth Rate is the annualized percentage rate of growth in a company's dividend payments. Higher rates are favorable as they indicate strong financial health and potential for future payout increases.

Reviewing Sun Hung Kai Properties' Dividend Ratio from 2003 to 2023, we observe significant fluctuations, with values ranging from 74.7475 to -42.7746. The average growth rate sits at approximately 10.33%. Despite some negative values and zero payouts in various years, the average suggests a relatively positive trend. However, the inconsistency and occasional missing dividends might concern investors focusing on steady income.

Average annual Payout Ratio lower than 65% in the last 20 years?

The payout ratio indicates the percentage of earnings distributed to shareholders in the form of dividends. A lower payout ratio implies more earnings are being retained for growth and stability.

The payout ratio for Sun Hung Kai Properties (SHG.F) over the past 20 years averages at 38.97%, which is well below the 65% threshold. This is a positive indicator as it suggests that the company is distributing a sustainable portion of its earnings as dividends while retaining enough to reinvest in the business. The consistent payout ratio below 65% reflects prudent financial management and a potential for growth. However, the spike to 98.067% in 2022 signals a need for further investigation, as such a high ratio may not be sustainable.

Dividends Well Covered by Earnings?

Dividends well covered by earnings signify the company's ability to sustain payout levels, ensuring investor confidence.

Analyzing the coverage ratio data from 2003 to 2023, we observe fluctuations in the EPS/DPS ratio, highlighting periods where the company’s ability to cover dividends was stronger and weaker. Specifically, years like 2022 show a high coverage ratio of 0.98, whereas years like 2007 show a significantly lower ratio at 0.26. The recent trend in 2023 shows coverage at 0.60, which suggests that the dividends are relatively well covered by earnings. This is a positive sign as consistent and adequately covered dividends illustrate a firm’s financial stability and commitment to returning value to shareholders. In summary, while there are fluctuations, the overall trend suggests a moderately good position on coverage.

Dividends Well Covered by Cash Flow?

The criterion assesses whether the company's dividends are adequately supported by its free cash flow, indicating the company's capability to sustain its dividend payments. It is crucial as it ensures that dividends are paid from actual cash earnings rather than through borrowing or other unsustainable measures.

The free cash flow data for Sun Hung Kai Properties (SHG.F) demonstrates substantial volatility over the years, swinging from significant positive values to large negative ones, reflecting inconsistent cash generation. For instance, in 2010, free cash flow stood at HK$5,075 million whereas it plunged to negative HK$7,573 million in 2011. Positive trends, such as a spike to HK$43,514 million in 2020, show promising potential for dividend coverage. In 2009, the dividend coverage was at its peak (2.244), suggesting robust cash flow relative to dividend payouts. However, in 2005, the coverage was notably poor (-3.213), indicating dividends far exceeded available cash flow, a risky scenario. Despite the mixed trends, recent years (2022 and 2023) display decent coverage ratios (1.263 and 0.661), suggesting a healthier approach to dividend sustainability, though not consistently strong.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividend payments over a long period, such as 20 years, is critical for income-seeking investors because it indicates a consistent and reliable income stream. Companies that can maintain or gradually increase dividends even during economic downturns show strong financial health and a commitment to returning value to shareholders.

A close examination of Sun Hung Kai Properties (SHG.F) Dividend per Share chart over the last 20 years reveals steady growth with only one noticeable hiccup. The dividend per share values have generally increased from HKD 1 in 2003 to HKD 8.65 in 2022, indicating strong financial management and a commitment to rewarding shareholders. However, the year 2023 stands out as a significant anomaly where the dividend per share dropped dramatically from HKD 8.65 in 2022 to HKD 4.95 in 2023—a sharp decline exceeding the 20% threshold. This dramatic drop is notable and could raise concerns for income-focused investors about future dividend stability, signaling potential financial struggles or strategic shifts within the company.

Dividends Paid for Over 25 Years?

Evaluating whether a company has paid dividends consistently for over 25 years is significant because it demonstrates the company's ability to generate ongoing profits and a commitment to returning value to shareholders. Such consistency often reflects financial stability, operational resilience, and effective management.

According to the provided data, Sun Hung Kai Properties (SHG.F) has been paying dividends since 2003. This indicates that the company has a track record of paying dividends for approximately 20 years, falling short of the 25-year mark. However, the increasing trend in dividend payments—from HKD 1 in 2003 to HKD 4.95 in 2023—along with the significant spike to HKD 8.65 in 2022 before reverting back, suggests a strong capacity for profit generation and commitment to shareholder returns. This trend is positive overall but does not entirely meet the criterion of a 25-year history.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases imply a company’s strong financial health and commitment to returning value to its shareholders. It can be used as a signal that management believes the stock is undervalued.

Sun Hung Kai Properties (SHG.F) has not demonstrated consistent stock repurchases over the past 20 years. In fact, reliable repurchases only occurred in 2005. The number of shares outstanding has fluctuated and generally increased over time from approximately 2.4 billion in 2003 to roughly 2.9 billion by 2023. While the average rate of share repurchase is 0.9494, this was not due to recurrent buybacks. Instead, this indicates that the firm has undertaken only limited buybacks, suggesting they have not consistently returned value to shareholders through buybacks. This trend is generally unfavorable in the context of reliable buybacks, as it doesn’t reinforce a sustained confidence from management in the intrinsic value of the company’s stock.