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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. Recently, China Isotope & Radiation Corporation (HKG:1763) has started paying dividends to shareholders. Today it yields 2.0%. Let’s dig deeper into whether China Isotope & Radiation should have a place in your portfolio.
Check out our latest analysis for China Isotope & Radiation
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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Does it pay an annual yield higher than 75% of dividend payers?
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Has it paid dividend every year without dramatically reducing payout in the past?
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Has the amount of dividend per share grown over the past?
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Does earnings amply cover its dividend payments?
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Will the company be able to keep paying dividend based on the future earnings growth?
How does China Isotope & Radiation fare?
The company currently pays out 12% of its earnings as a dividend, according to its trailing twelve-month data, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect 1763’s payout to increase to 23% of its earnings. Assuming a constant share price, this equates to a dividend yield of 2.4%. However, EPS is forecasted to fall to CN¥1.09 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.
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 Isotope & Radiation as a dividend investment. It has only been paying out dividend for the past one year. Generally, the rule of thumb for determining whether a stock is a reliable dividend payer is that it should be consistently paying dividends for the past 10 years or more. Clearly there’s a long road ahead before we can ascertain whether 1763 one as a stable dividend player.
Compared to its peers, China Isotope & Radiation generates a yield of 2.0%, which is high for Medical Equipment stocks but still below the low risk savings rate.