In This Article:
A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. Historically, China Life Insurance Company Limited (HKG:2628) has paid a dividend to shareholders. It currently yields 2.8%. Does China Life Insurance tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
Check out our latest analysis for China Life Insurance
5 questions I ask before picking a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
-
Is its annual yield among the top 25% of dividend-paying companies?
-
Does it consistently pay out dividends without missing a payment of significantly cutting payout?
-
Has dividend per share risen in the past couple of years?
-
Can it afford to pay the current rate of dividends from its earnings?
-
Will it be able to continue to payout at the current rate in the future?
How does China Life Insurance fare?
The current trailing twelve-month payout ratio for the stock is 46%, meaning the dividend is sufficiently covered by earnings. However, going forward, analysts expect 2628’s payout to fall to 36% of its earnings. Assuming a constant share price, this equates to a dividend yield of 3.0%. However, EPS should increase to CN¥1.29, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
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 dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. Not only have dividend payouts from China Life Insurance fallen over the past 10 years, it has also been highly volatile during this time, with drops of over 25% in some years. These characteristics do not bode well for income investors seeking reliable stream of dividends.
In terms of its peers, China Life Insurance produces a yield of 2.8%, which is high for Insurance stocks but still below the market’s top dividend payers.
Next Steps:
Taking all the above into account, China Life Insurance is a complicated pick for dividend investors given that there are a couple of positive things about it as well as negative. 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, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. I’ve put together three relevant aspects you should further examine: