Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. Historically, SINOPEC Engineering (Group) Co Ltd (HKG:2386) has paid dividends to shareholders, and these days it yields 3.5%. Let’s dig deeper into whether SINOPEC Engineering (Group) should have a place in your portfolio.

Check out our latest analysis for SINOPEC Engineering (Group)

5 checks you should use to assess a dividend stock

When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:

• Is it the top 25% annual dividend yield payer?

• Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?

• Has dividend per share risen in the past couple of years?

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

• Will the company be able to keep paying dividend based on the future earnings growth?

Does SINOPEC Engineering (Group) pass our checks?

The company currently pays out 77.0% of its earnings as a dividend, according to its trailing twelve-month data, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting lower payout ratio of 48.1%, leading to a dividend yield of 4.7%. However, EPS should increase to CN¥0.63, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.

If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. Unfortunately, it is really too early to view SINOPEC Engineering (Group) as a dividend investment. It has only been consistently paying dividends for 5 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.

Compared to its peers, SINOPEC Engineering (Group) produces a yield of 3.5%, which is on the low-side for Construction stocks.

Next Steps:

Whilst there are few things you may like about SINOPEC Engineering (Group) from a dividend stock perspective, the truth is that overall it probably is not the best choice for a dividend investor. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. 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. I’ve put together three pertinent aspects you should look at:

1. Future Outlook: What are well-informed industry analysts predicting for 2386’s future growth? Take a look at our free research report of analyst consensus for 2386’s outlook.

2. Valuation: What is 2386 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 2386 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.