CLP Holdings Limited (NASDAQOTH:CLPHY) and Power Assets Holdings Ltd (NASDAQOTH:HGKGF) are two companies utility companies listed in Hong Kong. Both shares also appeal to income investors, since they offer dividend yields of between 3% and 5%.
However, if you could only pick one stock, which would you choose? To make your life simpler, I will compare their dividend yields, dividend historical growth rates, and dividend payout ratios of the two companies to determine the better dividend share for you.
Before we analyze the dividend aspects of CLP and Power Assets, let's find out a bit more about their businesses.
CLP is involved in power generation, transmission and distribution, and electricity and gas retail activities. In Hong Kong, it operates a vertically integrated electricity supply business that provides electricity supply to over 80% of the city's population. Outside the country, it has a presence in Mainland China, India, Southeast Asia, Taiwan, and Australia.
On the other hand, Power Assets has businesses in electricity generation, transmission, and distribution; renewable energy; energy from waste; gas distribution and oil transmission. The company provides electricity in Hong Kong through its subsidiary, HK Electric Investments Ltd(NASDAQOTH:HGKGY). In terms of diversification, Power Assets is more diversified than CLP, with investments in Hong Kong, Thailand, Australia, New Zealand, Mainland China, the UK, the Netherlands, Portugal, the US, and Canada.
HK Electric and CLP are the only two electricity generation companies providing electricity to Hong Kong.
Currently, CLP's share price is at HK$88.10, giving it a trailing dividend yield of 3.5%. In comparison, Power Assets sports a higher trailing dividend yield of 4.9% at its share price of HK$57.15 right now.
Winner: Power Assets
Dividend growth rate
The dividend yield tells us what a company has paid over the last 12 months. But we should also analyse how the company's dividend has changed over time, preferably over the previous five fiscal years.
CLP paid a total dividend of HK$2.62 in 2014, and that grew to HK$3.02 in 2018, translating to an annualized growth rate of 3.6%.
On the other hand, Power Assets' total dividend has climbed 1.1% annually from HK$2.68 to HK$2.80 during the same time frame. Investors should take note that Power Assets paid out substantial special dividends in both 2016 and 2017, but they are one-offs.
Dividend payout ratio
Beyond the trailing dividend yield, we should also assess whether a company can maintain or grow its current dividend in the future. To do that, we can compare the company's dividend payout ratio (dividend as a percentage of earnings). Companies that pay out lower than 100% of earnings as dividends have a margin of safety.
In 2018, CLP produced earnings per share (EPS) of HK$5.36. Given that it dished out HK$3.02 per share in dividend for the year, its dividend payout ratio stood at 56%.
Meanwhile, Power Assets' 2018 dividend payout ratio stood at 78% (EPS of HK$3.58 and dividend per share of HK$2.80).
Since CLP's dividend payout ratio is more conservative than that of Power Assets, CLP is the safer dividend share. The lower dividend payout ratio could also mean that CLP's dividend in the years ahead has larger headroom to grow.
CLP may have a much lower dividend yield than Power Assets currently. However, it is the better dividend share, in my opinion, with its stronger dividend growth and a lower dividend payout ratio.
A version of article originally appeared on our Fool Asia site. For more coverage like this head over to Fool.hk.en