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Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. Historically, Pak Fah Yeow International Limited (HKG:239) has been paying a dividend to shareholders. Today it yields 4.2%. Let’s dig deeper into whether Pak Fah Yeow International should have a place in your portfolio.

See our latest analysis for Pak Fah Yeow International

5 questions I ask before picking a dividend stock

When researching a dividend stock, I always follow the following screening criteria:

• Is it paying an annual yield above 75% of dividend payers?

• 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?

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

• Will it have the ability to keep paying its dividends going forward?

How well does Pak Fah Yeow International fit our criteria?

Pak Fah Yeow International has a trailing twelve-month payout ratio of 57%, 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 considering the sustainability of dividends, it is also worth checking the cash flow of a company. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.

If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. Whilst its per-share payments have increased during the past 10 years, there has been some hiccups. Investors have seen reductions in the dividend per share in the past, although, it has picked up again.

In terms of its peers, Pak Fah Yeow International generates a yield of 4.2%, which is high for Pharmaceuticals stocks but still below the market’s top dividend payers.

Next Steps:

Taking all the above into account, Pak Fah Yeow International is a complicated pick for dividend investors given that there are a couple of positive things about it as well as negative. 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, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. I’ve put together three important factors you should look at: