Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. In the last few years Yongsheng Advanced Materials Company Limited (HKG:3608) has paid a dividend to shareholders. Today it yields 3.1%. Should it have a place in your portfolio? Let’s take a look at Yongsheng Advanced Materials in more detail.
View our latest analysis for Yongsheng Advanced Materials
5 checks you should do on a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
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Is it the top 25% annual dividend yield payer?
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Does it consistently pay out dividends without missing a payment of significantly cutting payout?
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Has it increased its dividend per share amount over the past?
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Is its earnings sufficient to payout dividend at the current rate?
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Will it be able to continue to payout at the current rate in the future?
Does Yongsheng Advanced Materials pass our checks?
The company currently pays out 28% of its earnings as a dividend, according to its trailing twelve-month data, meaning the dividend is sufficiently covered by earnings. Furthermore, analysts have not forecasted a dividends per share for the future, which makes it hard to determine the yield shareholders should expect, and whether the current payout is sustainable, moving forward.
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 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 Yongsheng Advanced Materials as a dividend investment. It has only been consistently paying dividends for 4 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
In terms of its peers, Yongsheng Advanced Materials has a yield of 3.1%, which is on the low-side for Luxury stocks.
Next Steps:
After digging a little deeper into Yongsheng Advanced Materials’s yield, it’s easy to see why you should be cautious investing in the company just 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 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 fundamental factors you should further research: