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Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. Historically, China Zhongwang Holdings Limited (HKG:1333) has paid a dividend to shareholders. It currently yields 7.3%. Should it have a place in your portfolio? Let’s take a look at China Zhongwang Holdings in more detail.

View our latest analysis for China Zhongwang Holdings

5 questions I ask before picking a dividend stock

Whenever I am looking at a potential dividend stock investment, I always check these five metrics:

• Is its annual yield among the top 25% of dividend-paying companies?

• Has it paid dividend every year without dramatically reducing payout in the past?

• Has dividend per share amount increased over the past?

• Does earnings amply cover its dividend payments?

• Will the company be able to keep paying dividend based on the future earnings growth?

How does China Zhongwang Holdings fare?

The current trailing twelve-month payout ratio for the stock is 41%, which means that the dividend is covered by earnings. However, going forward, analysts expect 1333’s payout to fall to 30% of its earnings, which leads to a dividend yield of around 6.6%. However, EPS should increase to CN¥0.61, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.

When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.

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. Unfortunately, it is really too early to view China Zhongwang Holdings as a dividend investment. It has only been consistently paying dividends for 9 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.

Relative to peers, China Zhongwang Holdings has a yield of 7.3%, which is high for Metals and Mining stocks.

Next Steps:

Keeping in mind the dividend characteristics above, China Zhongwang Holdings is definitely worth considering for investors 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. There are three essential aspects you should further research:

1. Future Outlook: What are well-informed industry analysts predicting for 1333’s future growth? Take a look at our free research report of analyst consensus for 1333’s outlook.

2. Valuation: What is 1333 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 1333 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.

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.