During global economy downturn, most company has ceased or reduced their dividend payment to save cash. In the past, Banks are the most popular stocks for dividend investor. However, those stocks have also reduced their dividend payment during this severe economy downturn. Due to regulation requirement, HSBC (00005) have already ceased the dividend payment for two quarters. Hang Seng bank (00011) have reduced their dividend payment by 32.1% yoy for the first half of 2020. The four biggest Chinese bank don’t pay interim dividend, but the increase of bad debt level may affect their fiscal dividend police. This is a good news for dividend investor if the company can maintain their dividend payout under this tough market condition, below are six candidates from different industry which may be the best dividend stock in Hong Kong market.
LINK REIT (00823)
Link REIT is one of the largest REIT in Asia. Its business including retail facilities, car park and office. 85.5% portfolio are located in Hong Kong, 12.8% from mainland China and 1.7% from oversea. From the annual report for the year ended 31 March 2020, Link REIT achieved 6.8% increased yoy in revenue and 5.9% increased yoy in distribution per unit. This result may not fully reflect the effect of global economy downturn during the second quarter of 2020. However, as the company still performed well during the second half of 19/20 fiscal year, the stable business nature of Link REIT seems to be able to resist the economy downturn. As declared by the management, the distribution per unit was HKD 1.4572 for second half of 19/20 fiscal year which was 3.68% increase yoy. Current dividend yield for Link REIT is around 4.4%.
On 17 June 2020, the management from Link REIT (0823) proposed amendment of the scope of permitted investments under Link’s investment policy. This move can further help the management improve the value of Link REIT. The distribution per unit are expected to increase in future.
China Mobile (00941)
China Mobile is one of the largest telecommunication service provider in China. Its customer base includes 947 million mobile users and 197 million wire-line broadband users. The operation revenue for 2020 first half was RMB 389.9 billion which up by 0.1% yoy. Earning per share for 2020 first half was RMB 2.72 which decreased by just 0.73% yoy. Interim dividend for 2020 was HKD 1.53 per share which up 0.196% yoy. Current dividend yield for China Mobile is around 6%.
One of the advantage of China Moblie is its strong ability to generate free cash flow. The free cash flow was RMB59.0 billion in the first half of 2020 which up by 44.1% yoy. As of 30 June 2020, the Group’s total cash and bank balances were RMB410.3 billion. The ability to generate free cash flow allows China Moblie to maintain a stable dividend policy. In future, China Moblie will play an important role in development of 5G network and data centers in China. Those development will be the main catalyst for future growth.
Updated: China Mobile (00941) is among the US ‘s sanctions list.
Power Asset (00006)
Power Asset is a globalize utility company. It’s business including electricity generation and networks, gas and oil Networks, renewable energy and energy from waste. For 2020 first half, operation income was HKD 701 million which down by 32.1% yoy. Earning per share was HKD 1.06 which down by 40% yoy. However, interim dividend was $0.77 per share which remain unchanged. Current dividend yield is around 6.6%.
The earning of utility company is highly correlate to the economy activity. Due to global economy turn down, the 2020 first half result of Power Asset is fully understandable. However, Power Asset still able to generate a strong cash flow during this severe economy environment. The net cash generated from operating activities was HKD 1,262 million for 2020 first half which increased by 21.4% yoy. Net cash generated from investing activities was HKD 2,122 million for 2020 first half. Those cash flow are able to offset the dividend payment for 2020 first half. As economy activity start to increase again, Power Asset should be able to generate a better earning and maintain its dividend policy.
MTR is the unique railway operator in Hong Kong. It’s business including transport operation and property development. Besides focus on China and Hong Kong, MTR also develop its international business in United Kingdom, Sweden and Australia. For 2020 first half , revenue from recurrent businesses was HKD 21,592 million which was decreased by 23.6% yoy. Earning per share turned into loss HKD -0.05 from HKD 0.9 in 2019. Interim dividend for 2020 was HKD 0.25 per share which remain unchanged. Current dividend yield is around 3%.
There was no surprise that MTR made a loss for the first half of 2020 as there was economy lock down and social isolation over the world. However, the unique and diversify business nature may help MTR to maintain its dividend policy. The unique business nature of railway can provide strong operation cash flow for the company. On the other hand, the property development division may provide addition revenue during this tough environment. For 2020 first half, profit from property development was HKD 5,200 million which increased 571% yoy. As economy start to recover, the cash flow and balance sheet of MTR will be much stronger.
Ping An (02318)
Ping An is a lending integrated financial institute in China. Its business including life and health insurance, property and casualty insurance, banking , asset management and technology. For 2020 first half, total revenue was RMB 683,280 million which decreased by 1% yoy. Earning per share was RMB 3.88 which decreased by 29.2% yoy. Interim dividend for 2020 was RMB 0.8 per share which increased by 6.67% yoy. Current dividend yield is around 2.9%
One of the advantage of Ping An is its highly integrated banking and insurance business. It helps to diversify the risk for any single financial business. As banking unit suffer high bad debt provision, insurance unit may keep providing cash flow to the company by premium income. With this integrated system , Ping An can enjoy a stable cash flow and able to maintain its dividend policy.
PetroChina is one of the state-owned oil company in China. Its business including exploration and production, refining and chemicals, marketing, natural Gas and pipeline. For 2020 first half, total revenue was RMB 929,045 million which decreased by 22.3% yoy. Earning per share turned into loss RMB -0.164 from RMB 0.155 in 2019. However, Interim dividend for 2020 was RMB 0.08742 per share which increased by 12.5% yoy. Current dividend yield is around 6.7%.
With the reduction of cash outflow from investing activities, PetroChina able to save cash and maintain dividend policy. After the completion of selling its pipeline business and assets, PetroChina will have more flexibility to maintain or improve the dividend policy in future.
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