The board of PCCW Limited (HKG:8) has announced that it will pay a dividend on the 5th of September, with investors receiving HK$0.0977 per share. Based on this payment, the dividend yield will be 6.8%, which is fairly typical for the industry.

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PCCW's Projections Indicate Future Payments May Be Unsustainable

Estimates Indicate PCCW's Could Struggle to Maintain Dividend Payments In The Future

PCCW's Future Dividends May Potentially Be At Risk

Unless the payments are sustainable, the dividend yield doesn't mean too much. PCCW is unprofitable despite paying a dividend, and it is paying out 96% of its free cash flow. This is quite a strong warning sign that the dividend may not be sustainable.

Earnings per share is forecast to rise exponentially over the next year. If recent patterns in the dividend continues, we would start to get a bit worried, with the payout ratio possibly reaching 274%.

See our latest analysis for PCCW

PCCW Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2015, the dividend has gone from HK$0.208 total annually to HK$0.383. This means that it has been growing its distributions at 6.3% per annum over that time. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.

Dividend Growth Potential Is Shaky

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, things aren't all that rosy. Over the past five years, it looks as though PCCW's EPS has declined at around 26% a year. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.

PCCW's Dividend Doesn't Look Sustainable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about PCCW's payments, as there could be some issues with sustaining them into the future. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 3 warning signs for PCCW (of which 2 make us uncomfortable!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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