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Important news for shareholders and potential investors in PCCW Limited (HKG:8): The dividend payment of HK$0.089 per share will be distributed into shareholder on 10 October 2018, and the stock will begin trading ex-dividend at an earlier date, 28 August 2018. What does this mean for current shareholders and potential investors? Below, I will explain how holding PCCW can impact your portfolio income stream, by analysing the stock’s most recent financial data and dividend attributes.

View our latest analysis for PCCW

5 questions to ask before buying a dividend stock

When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:

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

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

• Has the amount of dividend per share grown over the past?

• Does earnings amply cover its dividend payments?

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

How does PCCW fare?

The current trailing twelve-month payout ratio for 8 is 98.7%, meaning the dividend is not sufficiently covered by its earnings. In the near future, analysts are predicting a higher payout ratio of 115%, leading to a dividend yield of 7.0%. However, EPS is forecasted to fall to HK$0.16 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.

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 8’s per share payments have increased in the past 10 years, it has not been a completely smooth ride. Shareholders would have seen a few years of reduced payments in this time.

Relative to peers, PCCW produces a yield of 7.1%, which is high for Telecom stocks.

Next Steps:

If you are building an income portfolio, then PCCW 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, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. There are three essential aspects you should further examine:

1. Future Outlook: What are well-informed industry analysts predicting for 8’s future growth? Take a look at our free research report of analyst consensus for 8’s outlook.

2. Valuation: What is 8 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 8 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.