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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, Jiangxi Copper Company Limited (HKG:358) has paid dividends to shareholders, and these days it yields 2.1%. Let’s dig deeper into whether Jiangxi Copper should have a place in your portfolio.
View our latest analysis for Jiangxi Copper
How I analyze a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
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Does it pay an annual yield higher than 75% of dividend payers?
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Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
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Has dividend per share amount increased over the past?
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Is is able to pay the current rate of dividends from its earnings?
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Will it be able to continue to payout at the current rate in the future?
How does Jiangxi Copper fare?
The current trailing twelve-month payout ratio for the stock is 34%, which means that the dividend is covered by earnings. However, going forward, analysts expect 358’s payout to fall to 10% of its earnings. Assuming a constant share price, this equates to a dividend yield of 2.9%. However, EPS should increase to CN¥0.77, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.
If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. Dividend payments from Jiangxi Copper have been volatile in the past 10 years, with some years experiencing significant drops of over 25%. This means that dividend hunters should probably steer clear of the stock, at least for now until the track record improves.
Relative to peers, Jiangxi Copper generates a yield of 2.1%, which is on the low-side for Metals and Mining stocks.
Next Steps:
If Jiangxi Copper 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. There are three essential factors you should look at: