Attention dividend hunters! Stella International Holdings Limited (HKG:1836) will be distributing its dividend of US$0.30 per share on the 18 October 2018, and will start trading ex-dividend in 4 days time on the 13 September 2018. Investors looking for higher income-generating stocks to add to their portfolio should keep reading, as I take a deeper dive into Stella International Holdings’s latest financial data to analyse its dividend attributes.

See our latest analysis for Stella International Holdings

How I analyze a dividend stock

Whenever I am looking at a potential dividend stock investment, I always check these five metrics:

• Does it pay an annual yield higher than 75% of dividend payers?

• Does it consistently pay out dividends without missing a payment of significantly cutting payout?

• Has it increased its dividend per share amount over the past?

• Is is able to pay the current rate of dividends from its earnings?

• Based on future earnings growth, will it be able to continue to payout dividend at the current rate?

How does Stella International Holdings fare?

The current trailing twelve-month payout ratio for 1836 is 108%, which means that the dividend is not well-covered by its earnings. However, going forward, analysts expect 1836’s payout to fall into a more sustainable range of 83.6% of its earnings, which leads to a dividend yield of 8.9%. Furthermore, EPS should increase to $0.10, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.

When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.

If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. Not only have dividend payouts from Stella International Holdings fallen over the past 10 years, it has also been highly volatile during this time, with drops of over 25% in some years. This means that dividend hunters should probably steer clear of the stock, at least for now until the track record improves.

Relative to peers, Stella International Holdings produces a yield of 7.5%, which is high for Luxury stocks.

Next Steps:

Taking all the above into account, Stella International Holdings is a complicated pick for dividend investors given that there are a couple of positive things about it as well as negative. 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 urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. I’ve put together three important aspects you should look at:

1. Future Outlook: What are well-informed industry analysts predicting for 1836’s future growth? Take a look at our free research report of analyst consensus for 1836’s outlook.

2. Valuation: What is 1836 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 1836 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.