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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. Koufu Group Limited (SGX:VL6) has begun paying dividends recently. It now yields 3.2%. Should it have a place in your portfolio? Let’s take a look at Koufu Group in more detail.
View our latest analysis for Koufu Group
5 questions I ask before picking a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
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Is it the top 25% annual dividend yield payer?
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Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
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Has dividend per share risen in the past couple of years?
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Can it afford to pay the current rate of dividends from its earnings?
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Will it have the ability to keep paying its dividends going forward?
How does Koufu Group fare?
The company currently pays out 21% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is covered by earnings. Going forward, analysts expect VL6’s payout to increase to 50% of its earnings. Assuming a constant share price, this equates to a dividend yield of around 3.8%. However, EPS is forecasted to fall to SGD0.046 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.
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. Unfortunately, it is really too early to view Koufu Group as a dividend investment. Last year was the company’s first dividend payment, so it is certainly early days. The standard practice for reliable payers is to look for 10 or so years of track record.
Relative to peers, Koufu Group produces a yield of 3.2%, which is high for Hospitality stocks but still below the market’s top dividend payers.
Next Steps:
Whilst there are few things you may like about Koufu 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 urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. Below, I’ve compiled three key aspects you should look at: