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Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. Luzhou Xinglu Water (Group) Co., Ltd. (HKG:2281) has started paying a dividend to shareholders. It currently trades on a yield of 7.2%. Does Luzhou Xinglu Water (Group) tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
View our latest analysis for Luzhou Xinglu Water (Group)
5 questions I ask before picking a dividend stock
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
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Is its annual yield among the top 25% of dividend-paying companies?
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Has it paid dividend every year without dramatically reducing payout in the past?
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Has dividend per share amount increased 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 Luzhou Xinglu Water (Group) pass our checks?
The company currently pays out 47% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is covered by earnings. Furthermore, analysts have not forecasted a dividends per share for the future, which makes it hard to determine the yield shareholders should expect, and whether the current payout is sustainable, moving forward.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. Unfortunately, it is really too early to view Luzhou Xinglu Water (Group) as a dividend investment. It has only been paying out dividend for the past one year. Generally, the rule of thumb for determining whether a stock is a reliable dividend payer is that it should be consistently paying dividends for the past 10 years or more. Clearly there’s a long road ahead before we can ascertain whether 2281 one as a stable dividend player.
Compared to its peers, Luzhou Xinglu Water (Group) has a yield of 7.2%, which is high for Water Utilities stocks.
Next Steps:
If you are building an income portfolio, then Luzhou Xinglu Water (Group) is a complicated choice since it has some positive aspects as well as negative ones. 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, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. There are three pertinent aspects you should further research: