State-backed coal producer Shenhua (1088) spiked by 16 percent yesterday after proposing a special dividend of 2.50 yuan (HK$2.81), raising market expectations that other state-owned enterprises might also pay high dividends.
Together with a final dividend of 46 fen, Shenhua is forking out 59.1 billion yuan on dividends.
Its dividend yield ratio is as high as 237 percent, way beyond market expectations.
Market watchers expressed doubts as to whether Shenhua's high-dividend policy is on the orders of the Chinese government. Shenhua vice chairman Ling Wen stressed that the company, not the government, made the decision.
He said Shenhua's debt ratio was lower than the industry average and it also trimmed capital expenditure last year.
The company hopes to raise the value of its shares and boost investors' confidence.
Ling also said that Shenhua has ample financial resources to pay the dividend and its upcoming projects will not be adversely affected.
Citigroup said Shenhua still has room to raise further its dividend payout.
Ling declined to comment on this, saying the final dividend will remain at a payout ratio of 40 percent if capital expenditure does not spiral.
Earlier this month, Xiao Yaqing, chairman of the State-owned Assets Supervision and Administration Commission, urged listed SOEs to issue dividends that would effectively provide higher returns to shareholders.
With Shenhua's move, the market expects other SOEs to pay similarly high dividends soon, including China Mobile (0941) which issues its annual results on Thursday. UBS said Shenhua's lavish dividend means Beijing is more willing to push SOEs into raising their dividends.
China Mobile closed over 3 percent higher yesterday, buoyed by expectations of a generous dividend.