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1 Hong Kong Dividend Stock to Buy for Conservative Investors

Dividend stock Hong Kong power

Tim Phillips

June 16, 2021

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For long-term investors, when we buy stocks for dividends we want to see stable passive income. A lot of Singapore investors may not realise it but Hong Kong’s stock market is a great place to find dividend stocks.

That’s because, like Singapore, dividends paid out by Hong Kong companies are completely tax free for all investors, local and international alike.

Previously, I’ve spoken about the importance of not focusing too much on yield and instead focusing on the growth of the dividend.

However, for investors that are perhaps starting out investing (or closer to retirement age) and want more stable options that provide a reasonable yield and predictable income then there are certainly viable sectors.

One such sector is utilities, where power producers have visibility on prices and can, a lot of the time, have built-in price increases.

So, with that, here is one solid Hong Kong-listed dividend stock that more conservative investors – looking for income – could potentially add to their portfolio.

Powering Hong Kong homes

CLP Holdings Ltd (SEHK: 2), also known as China Light and Power, is one of Hong Kong’s largest electricity providers – powering homes in Kowloon and the New Territories.

The company has also expanded outside its (obviously limited) home market to purchase assets in both Mainland China, India and Australia.

CLP’s business has remained fairly stable throughout the Covid-19 pandemic and the Hong Kong protests before that given the essential nature of its services.

Strong cash flows

In its most recent full year 2020, CLP reported a 4.1% year-on-year increase in operating earnings to HK$11.57 billion (US$1.49 billion).

That also allowed the company to raise its full-year 2020 dividend per share (DPS) to HK$3.10, although that was up only 0.6% year-on-year – still an admirable feat during a pandemic year.

Over the past 30 years, although CLP hasn’t grown its DPS at lightning speed, it has nevertheless been stable and heading upwards (see below).

CLP dividend HK

Source: CLP full-year 2020 earnings presentation

CLP is looking closely at working with the Hong Kong government to help with its target for the electricity sector to become carbon neutral by 2050.

The firm’s cash flow also remains robust with its 2020 full-year free cash flow coming in at HK$20.4 billion, up by HK$400 million on 2019’s figure.

Clearly, that will help support its dividend going forward and should provide peace of mind for long-term investors looking for reliable income.

Focus on sustainability of income

Also, unlike its peer Power Assets Holdings (SEHK: 6), which is yielding close to 6%, CLP can easily cover its dividend.

That’s because its dividend payout ratio (basically the amount in dividends it pays out as a percentage of profits) was 68% in 2020.

As for Power Assets, its own earnings per share (EPS) fell in 2020 by 14% but it still raised its dividend, meaning its dividend payout ratio was a precarious 98%. That doesn’t seem sustainable.

Finally, what about CLP’s dividend yield? At CLP’s current price of HK$78.25, shares are yielding a decent 4% on a trailing 12-month basis.

Disclaimer: ProsperUs Head of Content Tim Phillips doesn’t own shares of any companies mentioned.

About the Author: Tim Phillips

Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth. He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. He is also a certified SGX Academy Trainer. In his spare time, Tim enjoys running after his two young sons, playing football and practicing yoga.