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A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. Historically, Binhai Investment Company Limited (HKG:2886) has paid a dividend to shareholders. It currently yields 4.5%. Should it have a place in your portfolio? Let’s take a look at Binhai Investment in more detail.

Check out our latest analysis for Binhai Investment

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5 questions I ask before picking a dividend stock

When researching a dividend stock, I always follow the following screening criteria:

• Is it paying an annual yield above 75% of dividend payers?

• Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?

• Has it increased its dividend per share amount over the past?

• Can it afford to pay the current rate of dividends from its earnings?

• Will the company be able to keep paying dividend based on the future earnings growth?

Does Binhai Investment pass our checks?

The company currently pays out 57% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is covered by earnings. In the near future, analysts are predicting lower payout ratio of 30% which, assuming the share price stays the same, leads to a dividend yield of 11%.

If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider the cash flow of the business. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.

Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. The reality is that it is too early to consider Binhai Investment as a dividend investment. It has only been consistently paying dividends for 5 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.

Relative to peers, Binhai Investment has a yield of 4.5%, which is high for Gas Utilities stocks but still below the market’s top dividend payers.

Next Steps:

If Binhai Investment is in your portfolio for cash-generating reasons, there may be better alternatives out there. However, if you are not strictly just a dividend investor, the stock could still offer some interesting investment opportunities. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. There are three essential aspects you should further examine: