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A sizeable part of portfolio returns can be produced by dividend stocks due to their contribution to compounding returns in the long run. Recently, Henan Jinma Energy Company Limited (HKG:6885) has started paying dividends to shareholders. Today it yields 2.7%. Does Henan Jinma Energy tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
View our latest analysis for Henan Jinma Energy
Here’s how I find good dividend stocks
When researching a dividend stock, I always follow the following screening criteria:
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Is its annual yield among the top 25% of dividend-paying companies?
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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?
Does Henan Jinma Energy pass our checks?
The company currently pays out 19% of its earnings as a dividend, according to its trailing twelve-month data, meaning the dividend is sufficiently covered by earnings. Furthermore, analysts have not forecasted a dividends per share for the future, which makes it hard to determine the yield shareholders should expect, and whether the current payout is sustainable, moving forward.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. The reality is that it is too early to consider Henan Jinma Energy as a dividend investment. It has only been paying out dividend for the past one year. Generally, the rule of thumb for determining whether a stock is a reliable dividend payer is that it should be consistently paying dividends for the past 10 years or more. Clearly there’s a long road ahead before we can ascertain whether 6885 one as a stable dividend player.
In terms of its peers, Henan Jinma Energy generates a yield of 2.7%, which is on the low-side for Metals and Mining stocks.
Next Steps:
Now you know to keep in mind the reason why investors should be careful investing in Henan Jinma Energy for the dividend. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. 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. I’ve put together three essential factors you should look at: