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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, Texhong Textile Group Limited (HKG:2678) has paid dividends to shareholders, and these days it yields 4.5%. Let’s dig deeper into whether Texhong Textile Group should have a place in your portfolio.

See our latest analysis for Texhong Textile Group

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 it paying an annual yield above 75% of dividend payers?

• Does it consistently pay out dividends without missing a payment of significantly cutting payout?

• Has the amount of dividend per share grown 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?

Does Texhong Textile Group pass our checks?

Texhong Textile Group has a trailing twelve-month payout ratio of 30%, which means that the dividend is covered by earnings. In the near future, analysts are predicting a payout ratio of 30%, leading to a dividend yield of around 6.2%. Moreover, EPS should increase to CN¥1.57.

When considering the sustainability of dividends, it is also worth checking the cash flow of a company. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.

If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. Whilst its per-share payments have increased during the past 10 years, there has been some hiccups. Shareholders would have seen a few years of reduced payments in this time.

In terms of its peers, Texhong Textile Group generates a yield of 4.5%, which is high for Luxury stocks but still below the market’s top dividend payers.

Next Steps:

Taking into account the dividend metrics, Texhong Textile Group ticks most of the boxes as a strong dividend investment, putting it in my list of top dividend payers. 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. Below, I’ve compiled three essential factors you should further examine:

1. Future Outlook: What are well-informed industry analysts predicting for 2678’s future growth? Take a look at our free research report of analyst consensus for 2678’s outlook.

2. Valuation: What is 2678 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 2678 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.