Is China Industrial Securities International Financial Group Limited (HKG:6058) A Great Dividend Stock?

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Simply Wall St

Mon, Sep 23, 2019, 11:59 PM

Today we'll take a closer look at China Industrial Securities International Financial Group Limited (HKG:6058) from a dividend investor's perspective. Owning a strong business and reinvesting the dividends is widely seen as an attractive way of growing your wealth. Yet sometimes, investors buy a popular dividend stock because of its yield, and then lose money if the company's dividend doesn't live up to expectations.

China Industrial Securities International Financial Group pays a 4.6% dividend yield, and has been paying dividends for the past two years. A 4.6% yield does look good. Could the short payment history hint at future dividend growth? Some simple analysis can reduce the risk of holding China Industrial Securities International Financial Group for its dividend, and we'll focus on the most important aspects below.

Explore this interactive chart for our latest analysis on China Industrial Securities International Financial Group!

SEHK:6058 Historical Dividend Yield, September 24th 2019

Payout ratios

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. So we need to form a view on if a company's dividend is sustainable, relative to its net profit after tax. China Industrial Securities International Financial Group paid out 42% of its profit as dividends, over the trailing twelve month period. This is a middling range that strikes a nice balance between paying dividends to shareholders, and retaining enough earnings to invest in future growth. One of the risks is that management reinvests the retained capital poorly instead of paying a higher dividend.

Consider getting our latest analysis on China Industrial Securities International Financial Group's financial position here.

Dividend Volatility

One of the major risks of relying on dividend income, is the potential for a company to struggle financially and cut its dividend. Not only is your income cut, but the value of your investment declines as well - nasty. This company's dividend has been unstable, and with a relatively short history, we think it's a little soon to draw strong conclusions about its long term dividend potential. During the past two-year period, the first annual payment was HK$0.02 in 2017, compared to HK$0.023 last year. This works out to be a compound annual growth rate (CAGR) of approximately 7.2% a year over that time. China Industrial Securities International Financial Group's dividend payments have fluctuated, so it hasn't grown 7.2% every year, but the CAGR is a useful rule of thumb for approximating the historical growth.

It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. China Industrial Securities International Financial Group might have put its house in order since then, but we remain cautious.

Dividend Growth Potential

With a relatively unstable dividend, it's even more important to evaluate if earnings per share (EPS) are growing - it's not worth taking the risk on a dividend getting cut, unless you might be rewarded with larger dividends in future. Over the past three years, it looks as though China Industrial Securities International Financial Group's EPS have declined at around 18% a year. A sharp decline in earnings per share is not great from from a dividend perspective, as even conservative payout ratios can come under pressure if earnings fall far enough.

Conclusion

To summarise, shareholders should always check that China Industrial Securities International Financial Group's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. We're glad to see China Industrial Securities International Financial Group has a low payout ratio, as this suggests earnings are being reinvested in the business. Second, earnings per share have been in decline, and its dividend has been cut at least once in the past. China Industrial Securities International Financial Group might not be a bad business, but it doesn't show all of the characteristics we look for in a dividend stock.

See if management have their own wealth at stake, by checking insider shareholdings in China Industrial Securities International Financial Group stock.

If you are a dividend investor, you might also want to look at our curated list of dividend stocks yielding above 3%.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.

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