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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, Beijing Tong Ren Tang Chinese Medicine Company Limited (HKG:3613) has been paying a dividend to shareholders. Today it yields 1.3%. Does Beijing Tong Ren Tang Chinese Medicine tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.

View our latest analysis for Beijing Tong Ren Tang Chinese Medicine

Here’s how I find good dividend stocks

When researching a dividend stock, I always follow the following screening criteria:

• Is it the top 25% annual dividend yield payer?

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

• Has it increased its dividend per share amount over the past?

• Can it afford to pay the current rate of dividends from its earnings?

• Based on future earnings growth, will it be able to continue to payout dividend at the current rate?

How does Beijing Tong Ren Tang Chinese Medicine fare?

Beijing Tong Ren Tang Chinese Medicine has a trailing twelve-month payout ratio of 29%, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect 3613’s payout to increase to 33% of its earnings. Assuming a constant share price, this equates to a dividend yield of 2.0%. In addition to this, EPS should increase to HK$0.75. The higher payout forecasted, along with higher earnings, should lead to greater dividend income for investors moving forward.

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’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. Unfortunately, it is really too early to view Beijing Tong Ren Tang Chinese Medicine as a dividend investment. It has only been consistently paying dividends for 6 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.

Relative to peers, Beijing Tong Ren Tang Chinese Medicine has a yield of 1.3%, which is on the low-side for Pharmaceuticals stocks.

Next Steps:

Now you know to keep in mind the reason why investors should be careful investing in Beijing Tong Ren Tang Chinese Medicine 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. There are three fundamental aspects you should look at: