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Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. Over the past 6 years, China Hongqiao Group Limited (SEHK:1378) has returned an average of 4.00% per year to shareholders in terms of dividend yield. Does China Hongqiao Group tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis. See our latest analysis for China Hongqiao Group
How I analyze a dividend stock
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 it consistently paid a stable dividend without missing a payment or drastically cutting payout?
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Has the amount of dividend per share grown over the past?
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Is it able 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 Hongqiao Group fare?
The company currently pays out 23.89% of its earnings as a dividend, according to its trailing twelve-month data, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect 1378’s payout to increase to 34.25% of its earnings, which leads to a dividend yield of 5.46%. In addition to this, EPS should increase to CN¥1.01. The higher payout forecasted, along with higher earnings, should lead to greater dividend income for investors moving forward. 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 China Hongqiao Group as a dividend investment. It has only been consistently paying dividends for 6 years, however, standard practice for reliable payers is to look for a 10-year minimum track record. In terms of its peers, China Hongqiao Group generates a yield of 2.14%, which is on the low-side for Metals and Mining stocks.
Next Steps:
If you are building an income portfolio, then China Hongqiao Group is a complicated choice since it has some positive aspects as well as negative ones. 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. There are three essential factors you should further examine: