Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. Historically, Longfor Group Holdings Limited (HKG:960) has paid dividends to shareholders, and these days it yields 4.1%. Does Longfor Group Holdings tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.

View our latest analysis for Longfor Group Holdings

Here’s how I find good dividend stocks

When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:

• Does it pay an annual yield higher than 75% of dividend payers?

• Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?

• Has the amount of dividend per share grown over the past?

• Does earnings amply cover its dividend payments?

• Will it have the ability to keep paying its dividends going forward?

Does Longfor Group Holdings pass our checks?

The current trailing twelve-month payout ratio for the stock is 33%, which means that the dividend is covered by earnings. Going forward, analysts expect 960’s payout to increase to 41% of its earnings, which leads to a dividend yield of 5.9%. In addition to this, EPS should increase to CN¥2.6. The higher payout forecasted, along with higher earnings, should lead to greater dividend income for investors moving forward.

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. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.

If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. The reality is that it is too early to consider Longfor Group 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, Longfor Group Holdings produces a yield of 4.1%, which is on the low-side for Real Estate stocks.

Next Steps:

If Longfor Group Holdings is in your portfolio for cash-generating reasons, there may be better alternatives out there. However, if you are not strictly just a dividend investor, the stock could still offer some interesting investment opportunities. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. There are three pertinent factors you should look at: