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Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. Legend Holdings Corporation (HKG:3396) has paid a dividend to shareholders in the last few years. It currently yields 1.5%. Should it have a place in your portfolio? Let’s take a look at Legend Holdings in more detail.
View our latest analysis for Legend Holdings
How I analyze a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
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Is its annual yield among the top 25% of dividend-paying companies?
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Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
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Has the amount of dividend per share grown over the past?
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Is its earnings sufficient to payout dividend at the current rate?
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Will the company be able to keep paying dividend based on the future earnings growth?
Does Legend Holdings pass our checks?
Legend Holdings has a trailing twelve-month payout ratio of 12%, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting a payout ratio of 11% which, assuming the share price stays the same, leads to a dividend yield of around 1.5%. In addition to this, EPS is forecasted to fall to CN¥1.96 in the upcoming year.
If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider the cash flow of the business. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
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 Legend Holdings 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.
Relative to peers, Legend Holdings generates a yield of 1.5%, which is on the low-side for Tech stocks.
Next Steps:
After digging a little deeper into Legend Holdings’s yield, it’s easy to see why you should be cautious investing in the company just for the dividend. 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 essential factors you should look at: