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A sizeable part of portfolio returns can be produced by dividend stocks due to their contribution to compounding returns in the long run. Historically, Far East Horizon Limited (HKG:3360) has been paying a dividend to shareholders. Today it yields 4.2%. Let’s dig deeper into whether Far East Horizon should have a place in your portfolio.

See our latest analysis for Far East Horizon

5 questions to ask before buying a dividend stock

When researching a dividend stock, I always follow the following screening criteria:

• Is their annual yield among the top 25% of dividend payers?

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

• Has dividend per share amount increased over the past?

• Is is able to pay the current rate of dividends from its earnings?

• Based on future earnings growth, will it be able to continue to payout dividend at the current rate?

Does Far East Horizon pass our checks?

The current trailing twelve-month payout ratio for the stock is 26.5%, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect 3360’s payout to increase to 29.7% of its earnings, which leads to a dividend yield of 5.4%. Furthermore, EPS should increase to CN¥1.05. The higher payout forecasted, along with higher earnings, should lead to greater dividend income for investors moving forward.

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 Far East Horizon as a dividend investment. It has only been consistently paying dividends for 6 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.

Relative to peers, Far East Horizon has a yield of 4.2%, which is on the low-side for Diversified Financial stocks.

Next Steps:

If Far East Horizon 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, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. I’ve put together three key aspects you should further examine:

1. Future Outlook: What are well-informed industry analysts predicting for 3360’s future growth? Take a look at our free research report of analyst consensus for 3360’s outlook.

2. Valuation: What is 3360 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 3360 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 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.