Hong Kong's Hang Seng Index (HSI) has many companies paying mouth-watering dividends with high yields that would attract anyone who is looking to generate dividend income.
Here, I'll look at the top three companies of the HSI that have the highest dividend yields. The yields are also much higher than the average dividend yield of around 4% of the HSI constituents.
China Petroleum & Chemical Corp (SEHK:386), or Sinopec, is the top dividend-yielding company on Hong Kong's benchmark index. Sinopec is a large China-based petroleum and petrochemicals group established in July 1998 and it trades as an H-share on the Hong Stock stock exchange.
At Sinopec's share price of HK$4.69 at the time of writing, it sports an attractive trailing dividend yield of 8.1%.
Over the past three years, Sinopec's dividend per share (DPS) has grown from RMB 0.249 in 2016 to RMB 0.42 in 2018. However, its 2018 dividend actually fell 16% from RMB 0.50 per share in 2017. The dividend cut continued into the 2019 second-quarter as the latest dividend dropped 25% to RMB 0.12 from RMB 0.16 one year back.
The quick lesson here is that even though a company's dividend yield may be high, we should investigate further to find out if the high dividend yield is sustainable. Since the dividend yield is a function of the share price, a falling share price due to poor business performance (which could then translate to falling dividend) could give rise to high yield.
#2: HSBC Holdings plc
HSBC Holdings plc (NYSE:HSBC), which was founded in Hong Kong in 1865, is one of the world's largest banks. From 2016 to 2018, the bank has been paying a flat DPS of US$0.51. At HSBC's current share of HK$58.20, it has a dividend yield of 6.9%.
HSBC's dividend yield looks high. However, if investors want to invest in a bank with growing dividends, they can consider Singapore-listed bank DBS Group Holdings Ltd (SGX:D05), which has a regional presence in Asia.
In the last three years, DBS's dividend per share has ballooned 100% from S$0.60 in 2016 to S$1.20 in 2018. And there's potential for dividends to grow further (you can find out why here). At DBS's share price of S$24.75, it has a dividend yield of 4.8%.
#3: Bank of China Ltd
Bank of China Ltd (OTC:BACHY) is another bank that gives dividend investors plenty to cheer about with a high yield of 6.8% at its share price of HK$3.09. Just like Sinopec, Bank of China also trades as an H-share in Hong Kong and is one of the biggest state-owned banks in China.
Bank of China has a better track record than HSBC when it comes to dividend growth, though. In 2016, the bank paid out RMB 0.168 per share as a dividend, and that climbed around 10% in all to RMB 0.184 per share in 2018.
Furthermore, Bank of China has the most conservative dividend payout ratio among the three companies at 30%. This shows that even if earnings were to drop significantly in the coming years, Bank of China would be able to maintain its dividend of RMB 0.184 per share. In comparison, Sinopec's and HSBC's dividend payout ratios in 2018 were slightly above 80%.
A version of this article originally appeared on our Fool Asia site. For more coverage like this head over to Fool.hk.en.