Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. China Hengshi Foundation Company Limited (HKG:1197) has paid a dividend to shareholders in the last few years. It currently yields 4.9%. Does China Hengshi Foundation tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
View our latest analysis for China Hengshi Foundation
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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Is it the top 25% annual dividend yield payer?
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Has it paid dividend every year without dramatically reducing payout in the past?
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Has dividend per share risen in the past couple of years?
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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 does China Hengshi Foundation fare?
China Hengshi Foundation has a trailing twelve-month payout ratio of 40%, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting a payout ratio of 41%, leading to a dividend yield of 4.9%.
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. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
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 China Hengshi Foundation as a dividend investment. It has only been consistently paying dividends for 2 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
In terms of its peers, China Hengshi Foundation produces a yield of 4.9%, which is on the low-side for Chemicals stocks.
Next Steps:
If China Hengshi Foundation 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. Below, I’ve compiled three key aspects you should look at:
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Future Outlook: What are well-informed industry analysts predicting for 1197’s future growth? Take a look at our free research report of analyst consensus for 1197’s outlook.
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Valuation: What is 1197 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 1197 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.