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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. Historically, Zhongsheng Group Holdings Limited (HKG:881) has been paying a dividend to shareholders. Today it yields 1.8%. Let’s dig deeper into whether Zhongsheng Group Holdings should have a place in your portfolio.
Check out our latest analysis for Zhongsheng Group Holdings
5 checks you should use to assess a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
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Is their annual yield among the top 25% of dividend payers?
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Has it paid dividend every year without dramatically reducing payout in the past?
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Has the amount of dividend per share grown 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?
How well does Zhongsheng Group Holdings fit our criteria?
Zhongsheng Group Holdings has a trailing twelve-month payout ratio of 18%, which means that the dividend is covered by earnings. Going forward, analysts expect 881’s payout to increase to 22% of its earnings. Assuming a constant share price, this equates to a dividend yield of 2.6%. Moreover, EPS should increase to CN¥1.78. The higher payout forecasted, along with higher earnings, should lead to greater dividend income for investors moving forward.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. Unfortunately, it is really too early to view Zhongsheng Group Holdings as a dividend investment. It has only been consistently paying dividends for 8 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
In terms of its peers, Zhongsheng Group Holdings generates a yield of 1.8%, which is on the low-side for Specialty Retail stocks.
Next Steps:
After digging a little deeper into Zhongsheng Group Holdings’s yield, it’s easy to see why you should be cautious investing in the company just 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, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. Below, I’ve compiled three important aspects you should look at: