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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, China Resources Land Limited (HKG:1109) has paid dividends to shareholders, and these days it yields 2.9%. Does China Resources Land tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
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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:
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Is their annual yield among the top 25% of dividend payers?
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Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
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Has dividend per share amount increased over the past?
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Can it afford to pay the current rate of dividends from its earnings?
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Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
How does China Resources Land fare?
The company currently pays out 24% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is covered by earnings. Going forward, analysts expect 1109’s payout to increase to 35% of its earnings. Assuming a constant share price, this equates to a dividend yield of around 5.0%. Moreover, EPS should increase to CN¥3.48. The higher payout forecasted, along with higher earnings, should lead to greater dividend income for investors moving forward.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
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. Although 1109’s per share payments have increased in the past 10 years, it has not been a completely smooth ride. Investors have seen reductions in the dividend per share in the past, although, it has picked up again.
In terms of its peers, China Resources Land generates a yield of 2.9%, which is on the low-side for Real Estate stocks.
Next Steps:
With this in mind, I definitely rank China Resources Land as a strong dividend stock, and makes it worth further research for anyone who likes steady income generation from their portfolio. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. Below, I’ve compiled three pertinent aspects you should further research: