A sizeable part of portfolio returns can be produced by dividend stocks due to their contribution to compounding returns in the long run. Historically, China Mobile Limited (HKG:941) has paid dividends to shareholders, and these days it yields 4.2%. Let’s dig deeper into whether China Mobile should have a place in your portfolio.

Check out our latest analysis for China Mobile

How I analyze a dividend stock

If you are a dividend investor, you should always assess these five key metrics:

• Is it the top 25% annual dividend yield payer?

• Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?

• Has it increased its dividend per share amount over the past?

• Is is able 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 Mobile fare?

The company currently pays out 50% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is covered by earnings. Going forward, analysts expect 941’s payout to increase to 58% of its earnings. Assuming a constant share price, this equates to a dividend yield of around 4.3%. However, EPS is forecasted to fall to CN¥5.65 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.

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. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.

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. Although 941’s per share payments have increased in the past 10 years, it has not been a completely smooth ride. Shareholders would have seen a few years of reduced payments in this time.

In terms of its peers, China Mobile produces a yield of 4.2%, which is on the low-side for Wireless Telecom stocks.

Next Steps:

Considering the dividend attributes we analyzed above, China Mobile is definitely worth keeping an eye on for someone looking to build a dedicated income portfolio. 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 relevant factors you should further research:

1. Future Outlook: What are well-informed industry analysts predicting for 941’s future growth? Take a look at our free research report of analyst consensus for 941’s outlook.

2. Valuation: What is 941 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 941 is currently mispriced by the market.

3. Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.

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.