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Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. Historically, Guangshen Railway Company Limited (HKG:525) has paid a dividend to shareholders. It currently yields 2.9%. Let’s dig deeper into whether Guangshen Railway should have a place in your portfolio.
Check out our latest analysis for Guangshen Railway
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5 checks you should do on a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
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Does it pay an annual yield higher than 75% of dividend payers?
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Does it consistently pay out dividends without missing a payment of significantly cutting payout?
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Has it increased its dividend per share amount over the past?
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Does earnings amply cover its dividend payments?
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Will it have the ability to keep paying its dividends going forward?
How does Guangshen Railway fare?
The company currently pays out 52% of its earnings as a dividend, according to its trailing twelve-month data, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting a payout ratio of 51% which, assuming the share price stays the same, leads to a dividend yield of 4.3%. Furthermore, EPS should increase to CN¥0.22.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.
If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. Dividend payments from Guangshen Railway 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.
Relative to peers, Guangshen Railway generates a yield of 2.9%, which is high for Transportation stocks but still below the market’s top dividend payers.
Next Steps:
If Guangshen Railway is in your portfolio for cash-generating reasons, there may be better alternatives out there. 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 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 factors you should further research: