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Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. Historically, CHTC Fong's International Company Limited (HKG:641) has paid a dividend to shareholders. It currently yields 4.9%. Does CHTC Fong's International tick all the boxes of a great dividend stock? Below, I'll take you through my analysis.
View our latest analysis for CHTC Fong's International
5 checks you should use to assess a dividend stock
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
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Is it the top 25% annual dividend yield payer?
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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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Is its earnings sufficient to payout dividend at the current rate?
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Will it have the ability to keep paying its dividends going forward?
How well does CHTC Fong's International fit our criteria?
The company currently pays out 39% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is 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 considering the sustainability of dividends, it is also worth checking the cash flow of a company. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.
If there is one thing that you want to be reliable in your life, it's dividend stocks and their constant income stream. Not only have dividend payouts from CHTC Fong's International fallen over the past 10 years, it has also been highly volatile during this time, with drops of over 25% in some years. These characteristics do not bode well for income investors seeking reliable stream of dividends.
Relative to peers, CHTC Fong's International produces a yield of 4.9%, which is high for Machinery stocks but still below the market's top dividend payers.
Next Steps:
Now you know to keep in mind the reason why investors should be careful investing in CHTC Fong's International for the dividend. On the other hand, if you are not strictly just a dividend investor, the stock could still be offering 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. There are three essential aspects you should further examine: