Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. Over the past 3 years, CGN Power Co Ltd. (SEHK:1816) has returned an average of 2.00% per year to shareholders in terms of dividend yield. Does CGN Power tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis. Check out our latest analysis for CGN Power

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

• Has it paid dividend every year without dramatically reducing payout in the past?

• Has the amount of dividend per share grown over the past?

• Can it afford to pay the current rate of dividends from its earnings?

• Will it have the ability to keep paying its dividends going forward?

How well does CGN Power fit our criteria?

CGN Power has a trailing twelve-month payout ratio of 24.02%, which means that the dividend is covered by earnings. Going forward, analysts expect 1816’s payout to increase to 32.61% of its earnings, which leads to a dividend yield of around 3.65%. However, EPS is forecasted to fall to CN¥0.19 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income. Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. The reality is that it is too early to consider CGN Power as a dividend investment. It has only been consistently paying dividends for 3 years, however, standard practice for reliable payers is to look for a 10-year minimum track record. In terms of its peers, CGN Power has a yield of 2.65%, which is on the low-side for Renewable Energy stocks.

Next Steps:

Whilst there are few things you may like about CGN Power from a dividend stock perspective, the truth is that overall it probably is not the best choice for a dividend investor. 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 factors you should look at: