Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. Historically, The Bank of East Asia Limited (HKG:23) has paid a dividend to shareholders. It currently yields 4.9%. Does Bank of East Asia tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
Check out our latest analysis for Bank of East Asia
5 questions to ask before buying a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
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Is their annual yield among the top 25% of dividend payers?
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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 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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Will the company be able to keep paying dividend based on the future earnings growth?
How well does Bank of East Asia fit our criteria?
Bank of East Asia has a trailing twelve-month payout ratio of 48%, which means that the dividend is covered by earnings. In the near future, analysts are predicting a payout ratio of 45%, leading to a dividend yield of 4.1%. Moreover, EPS should increase to HK$2.33.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. 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. Dividend payments from Bank of East Asia have been volatile in the past 10 years, with some years experiencing significant drops of over 25%. This means that dividend hunters should probably steer clear of the stock, at least for now until the track record improves.
In terms of its peers, Bank of East Asia has a yield of 4.9%, which is on the low-side for Banks stocks.
Next Steps:
Whilst there are few things you may like about Bank of East Asia from a dividend stock perspective, the truth is that overall it probably is not the best choice for a dividend investor. 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 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 pertinent aspects you should further examine:
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Future Outlook: What are well-informed industry analysts predicting for 23’s future growth? Take a look at our free research report of analyst consensus for 23’s outlook.
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Valuation: What is 23 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 23 is currently mispriced by the market.
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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.