Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. In the past 2 years Dali Foods Group Company Limited (SEHK:3799) has returned an average of 3.00% per year to investors in the form of dividend payouts. Let’s dig deeper into whether Dali Foods Group should have a place in your portfolio. See our latest analysis for Dali Foods 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 the top 25% annual dividend yield payer?

• 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?

Does Dali Foods Group pass our checks?

Dali Foods Group has a trailing twelve-month payout ratio of 103.23%, meaning the dividend is not sufficiently covered by its earnings. However, going forward, analysts expect 3799’s payout to fall into a more sustainable range of 67.98% of its earnings, which leads to a dividend yield of around 3.49%. Moreover, EPS should increase to CN¥0.27, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment. If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. The reality is that it is too early to consider Dali Foods Group as a dividend investment. It has only been consistently paying dividends for 2 years, however, standard practice for reliable payers is to look for a 10-year minimum track record. Compared to its peers, Dali Foods Group produces a yield of 2.60%, which is high for Food stocks but still below the market’s top dividend payers.

Next Steps:

Now you know to keep in mind the reason why investors should be careful investing in Dali Foods Group for the dividend. On the other hand, if you are not strictly just a dividend investor, the stock could still be offering some interesting investment opportunities. 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. I’ve put together three pertinent aspects you should further research:

• 1. Future Outlook: What are well-informed industry analysts predicting for 3799’s future growth? Take a look at our free research report of analyst consensus for 3799’s outlook.

• 2. Valuation: What is 3799 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 3799 is currently mispriced by the market.

• 3. 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 pass 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.