What am I missing with China Petroleum (ticker SNP) dividend too good to be true?

by Rellim03

It has a market cap of 98.5 billion so its pretty huge, and currently has a PE of 10.06 (which is pretty darn low)

The dividend was always good around 6.5% but after the recent price drop in almost all stocks, this company is now paying a dividend yielding a whopping 10.61%!!!

They also have a history of increasing the dividend annually.

My rule of thumb is stocks with high dividends have higher risk, but they usually are small to medium cap stocks. This is nearly 100 billion market cap, and that’s after the recent price crash.

They even have over 450,000 full time employees which I like, big market caps with lots of employees are generally safer bets.

What am I missing?

One concern is the dividend payout ratio is 120% But even one more year of the kind of growth in earnings they usually see and that should adjust.

But with these giants with operations globally from Alberta to Africa it’s harder to get a clear picture.

Also the dividend ex date was just a few weeks ago, and they pay the primary dividend annually instead of quarterly, so it will be 11 months until the next dividend payout.

The China tariffs are a concern, but Chinese tech seems more at risk than Chinas oil and gas. (IMO)

So thoughts on SNP trading on the NYSE? I’m open to all critical comments, thoughts and discussion.

 

Comment from SolarSurfer7:

Without looking too deeply into the company’s finances, I can think of a few things off the top of my head:

  1. They are a Chinese firm. That means they are subject to the whims of the Chinese government. For me, that basically cuts the stock price in half compared to an equivalent company based out of the US.
  2. I assume they earn money in Yuan? Emerging markets have been suffering recently due to the strength of the dollar. Do you understand how this works? Foreign companies borrow in dollars and then make money in their respective currencies. When the FED raises rates, it means the dollar is a more attractive currency to own, so people rush to cash out their foreign currencies for dollars, thus making dollars more valuable. Now foreign companies have to pay back debt in dollars that are worth more than they were before. This in turn adds additional risk that they might not be able to repay their debts. A company like SNP might be collecting revenues from a variety of foreign currencies thus making it less valuable than a company that collects in dollars. **This may not apply to Chinese firms so much as other countries, but worth looking into.
  3. A 120% dividend payout is obviously unsustainable. So long as next years earnings cover it, great, but if not, you’re looking at a divi cut and a corresponding fall in share price.
  4. Trade war

All of these factors might be keeping the share price down and thus the dividend yield high. With all that said, I’m a big believe in foreign investing. I, like many people, believe the US stock market is overstretched, so it might be easier to find better deals in foreign markets.