The Hang Seng Index has performed poorly this year, with a 7% YTD loss after it started the year strong, recording a 12% gain in January before gradually reversing over the last few months.
Given the near 20% retracement, we thought that this could be the time to add some Hong Kong stocks with sustainable dividends for the longer term portfolio.
To beat the current high interest environment, we have identified 5 stocks that can yield at least 7% sustainably.
1) Bank of China (HKG: 3988)
Bank of China (BOC) last traded at HKD 3.11 with a dividend of RMB 0.232 (HKD 0.2703), representing an approximate yield of 8.42% on a payout ratio of under 35%.
The bank has recorded sustainable profit growth across most years and currently trades at a low P/E ratio of under 4 times.
BOC is 4th among China’s big 4 banks and 10th in the world in terms of total assets. It operates in more than 60 countries and regions in the world and is regarded as the most international amongst the 4 banks. BOC is also a State Owned Enterprise.
The performance of banks is typically intrinsically linked to the performance of the economy. With China’s 2023 GDP growth forecast to be above 5%, BOC is likely to outperform the previous year. This would likely not only sustain its dividend but increase it.
2) China Everbright Environment Group (HKG: 257)
EB Environment last traded at HKD 3.17 with a dividend of HKD 0.24, representing an approximate yield of 7.57% on a payout ratio of under 35%.
EB Environment is the largest one-stop integrated environmental solution provider in China, Everbright Environment constructs and operates plants in these three core areas, namely solid waste, water-related business and clean energy.
It is a subsidiary of the China Everbright Group and itself has two listed subsidiaries: China Everbright Water Limited, which is dual listed on the Singapore and Hong Kong stock exchanges (SGX: U9E HKG: 1857), and China Everbright Greentech Limited, which is listed on the Hong Kong stock exchange (HKG: 1257).
EB Environment has recorded profit growth in most recent years. In 2022, the company was affected as the COVID-19 pandemic caused its construction revenue to slowed down. With the COVID-19 pandemic stabilising, EB Environment expects to benefit complete more projects under construction. With these projects completed, operational services will commence as well.
As concerns over the COVID-19 pandemic recede, there is also a broader trend of companies turning their focus to other concerns such as carbon emissions reduction which EB Environment will benefit from.
Hence EB Environment is likely to outperform 2022’s performance and this would likely not only sustain its dividend but likely lead to an increase.
3) PetroChina (HKG:857)
PetroChina last traded at HKD 5.22 with a dividend of RMB 0.42258 (HKD 0.4897), representing an approximate yield of 9.13%.
PetroChina is the publicly listed arm of China National Petroleum Corporation (CNPC), one of the world’s largest oil and gas companies.
PetroChina is more than 80% owned by CNPC. PetroChina is the largest oil and gas producer and distributor in China, contributing approximately 50% and 60% of China’s domestic oil and gas production volume respectively.
Integrated Oil and Gas companies like PetroChina have generally performed exceedingly well in 2022 as demand recovered and commodity prices spiked as a result of factors such as inflation and the Russia Ukraine conflict.
Oil prices have come down in 2023 and demand is expect to weaken in line with slower economic growth, hence it is the general expectation that Oil and Gas companies will not perform as well in 2023 when compared to 2022.
However, overall performance is still expected to remain robust. In 1Q23, PetroChina recorded a 6% decline in revenue YoY but recorded a 12% increase in profits as domestic sales volume increased coupled with a focus by PetroChina on profitability.
Hence PetroChina may still deliver a strong overall 2023 profit result and keep its dividends at current levels.
4) Genertec Universal Medical Group (HKG: 2666)
Universal Medical last traded at HKD 4.82 with a dividend of HKD 0.34, representing an approximate yield of 7.05% on a payout ratio of under 35%.
Universal Medical is a subsidiary of China General Technology (“Genertec”), a State Owned Enterprise. Its two main revenue generators are financial solutions such as asset financing for hospitals and hospital management.
Universal Medical assists hospitals owned by the Chinese government to source for adequate medical equipment to properly run a hospital and to provide equipment and finance leasing services to hospitals as well as manage the hospitals.
Universal Medical has recorded increased revenues and profits for the last 5 years. Due to the continued growth of its hospital management business, underlying profits are expected to remain robust thus underpinning dividend payouts.
In 1Q23 mainly due to the significant increase in the cost of foreign currency borrowings of the finance business compared to 1Q22 (as the Federal Reserve has not raised the interest rate then), profit of the leasing business for the period decreased by 19%. This was offset by an 18% volume increase in its hospital management business.
5) Tingyi (HKG: 322)
Tingyi last traded at HKD 12.20 with a total dividend of HKD 1.0646, representing an approximate yield of 8.42%
Tingyi is well known as the owner of the Master Kong brand of instant noodles, one of the largest instant noodle manufacturers in China as well as its range of ready to drink beverages. The company also manufactures and sells PepsiCo soft drinks exclusively in China.
In 2022, there were macro challenges such as rising price of raw materials due to inflation and the COVID-19 induced lockdowns. As large consumer staple companies tend to be significantly affected in the short term, Tingyi was also not spared.
In 2022, Tingyi reduced its dividend in line with the lowered net profit. Looking ahead, it is widely accepted that long term fundamentals such as China’s GDP growth and urbanisation rate remain intact. There is also potential in increasing consumption in new rural areas.
As the state of China’s economy improves, Tingyi will be in a better position to pass through inflationary costs to its customers and bring profitability and dividends back up.
Sustainability is key in dividend investing!
Some of these stocks are clearly on a growth path while others have faced dividend declines in 2022 due to macro conditions. Regardless, their 2023 outlook is positive and the dividends are likely to be sustainable.
In an uncertain climate where HK stocks have been underperforming, perhaps it is best to acquire cheaply and be handsomely paid while waiting for a recovery.
If you’re looking for more HK dividend stock ideas, I’ve compiled a list of Hong Kong blue chip stocks that were paying >7% dividends too.
