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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. Recently, APAC Resources Limited (HKG:1104) has started paying dividends to shareholders. Today it yields 5.0%. Should it have a place in your portfolio? Let’s take a look at APAC Resources in more detail.
View our latest analysis for APAC Resources
5 checks you should do on a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
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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 it increased its dividend per share amount over the past?
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Is its earnings sufficient to payout dividend at the current rate?
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Will it be able to continue to payout at the current rate in the future?
Does APAC Resources pass our checks?
APAC Resources has a trailing twelve-month payout ratio of 16%, meaning the dividend is sufficiently 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.
If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider the cash flow of the business. 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. The reality is that it is too early to consider APAC Resources 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.
In terms of its peers, APAC Resources produces a yield of 5.0%, which is high for Trade Distributors 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 APAC Resources 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 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: