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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. In the past, Postal Savings Bank of China Co Ltd (HKG:1658) has returned an average of 3.00% per year to investors in the form of dividend payouts. Should it have a place in your portfolio? Let’s take a look at Postal Savings Bank of China in more detail.

Check out our latest analysis for Postal Savings Bank of China

5 checks you should use to assess a dividend stock

If you are a dividend investor, you should always assess these five key metrics:

• Is it the top 25% annual dividend yield payer?

• Does it consistently pay out dividends without missing a payment of significantly cutting payout?

• Has dividend per share risen in the past couple of years?

• Is its earnings sufficient to payout dividend at the current rate?

• Will it be able to continue to payout at the current rate in the future?

Does Postal Savings Bank of China pass our checks?

The company currently pays out 23.75% 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 a payout ratio of 21.99%, leading to a dividend yield of 4.30%. Furthermore, EPS should increase to CN¥0.70.

If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. Unfortunately, it is really too early to view Postal Savings Bank of China as a dividend investment. Last year was the company’s first dividend payment, so it is certainly early days. The standard practice for reliable payers is to look for 10 or so years of track record.

Relative to peers, Postal Savings Bank of China generates a yield of 3.48%, which is on the low-side for Banks stocks.

Next Steps:

Taking all the above into account, Postal Savings Bank of China is a complicated pick for dividend investors given that there are a couple of positive things about it as well as negative. 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, 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 fundamental aspects you should look at:

1. Future Outlook: What are well-informed industry analysts predicting for 1658’s future growth? Take a look at our free research report of analyst consensus for 1658’s outlook.

2. Valuation: What is 1658 worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether 1658 is currently mispriced by the market.

3. Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.