Will Hong Kong Exchanges and Clearing Raise Its Dividend for 2020?


The listed sole operator of the Hong Kong Stock Exchange, Hong Kong Exchanges and Clearing Limited (SEHK: 388), has many qualities that make it an attractive dividend stock.

HKEX, for short, has a de facto monopoly in Hong Kong, giving it pricing power and a wide moat. It has a great position for potential growth given Hong Kong’s status as a major financial center and gateway for many multinational companies and global funds flows into China.

Management also has a proven history of delivering on strategic initiatives and turning in strong financial performances for the exchange operator. They are committed to leveraging new technology such as artificial intelligence (AI) to unlock further growth opportunities.

HKEX’s dividend per share (DPS) of HK$6.71, offering a yield of around 2.62% at current prices, is attractive to many investors as well.

Given that HKEX recently reported its 2019 earnings results can the exchange raise its dividend in 2020?

2019 earnings results

For the 2019 financial year, HKEX’s sales and other income rose 3% year-on-year to HK$16.3 billion (US$2.09 billion). EBITDA rose 4% year-on-year to HK$12.3 billion and profit after tax increased 1% year-on-year to HK$9.4 billion.

Earnings per share (EPS) was HK$7.49 per share, which more than covered its DPS of HK$6.71. For the year, HKEX benefitted from several big IPOs in Hong Kong (Alibaba and Budweiser APAC) that ranked it first globally among exchanges in terms of IPO funds raised for the year.

It also saw positive growth coming from strong Stock Connect revenue, due partly to the successful inclusion of China A shares into the FTSE Russell, MSCI and S&P Dow Jones indices.

However, HKEX also faced some headwinds. Due to the softer macroeconomic climate, its Cash & Derivatives Markets segment results weakened year-on-year and the exchange’s volumes and trading was impacted.

HKEX Dividend History

In terms of its recent dividend history, HKEX’s DPS increased from 2016 to 2018 but remained the same in 2019 as the company’s EPS growth plateaued due to macroeconomic headwinds (as you can see below).

HKEX dividend history 2015-2019 (HK$)


2016 2017 2018


Earnings Per Share


4.76 6.03 7.50


Dividend Per Share


4.25 5.40 6.71


Source: HKEX investor relations

For 2020, HKEX’s earnings per share growth could continue to face macroeconomic headwinds. Given the disruptive nature of the Covid-19 outbreak on consumer spending (car and smartphone sales in China have declined sharply, for example), China’s economic growth could continue to slow in 2020.

As a result, the resulting macroeconomic weakness could continue to weigh on HKEX’s results and make a material increase in EPS and the dividend unlikely.

Dividend stress test

If the coronavirus causes a sharp global recession, HKEX’s EPS and dividend could drop. In 2008 and 2009, HKEX’s earnings and DPS both fell due to the financial crisis.

HKEX Dividend History 2007-2010 (HK$)


2008 2009


Earnings Per Share


4.76 4.36


Dividend Per Share


4.29 3.93


Source: HKEX investor relations

Given that many analysts expect a rebound in economic activity in the second half of the year due to potential stimulus and containment efforts, HKEX’s earnings per share might not fall as much as it did in 2008 (if it does indeed fall).

Foolish takeaway

Due to the headwinds caused by Covid-19, the ongoing protests and the continued macroeconomic weakness in China, HKEX’s dividend is unlikely to rise by much, if at all for 2020.