A sizeable part of portfolio returns can be produced by dividend stocks due to their contribution to compounding returns in the long run. Huaxi Holdings Company Limited (HKG:1689) has paid a dividend to shareholders in the last few years. It currently yields 1.7%. Should it have a place in your portfolio? Let’s take a look at Huaxi Holdings in more detail.

Check out our latest analysis for Huaxi Holdings

5 questions I ask before picking a dividend stock

If you are a dividend investor, you should always assess these five key metrics:

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

• Has it consistently paid a stable dividend without missing a payment or drastically 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?

• Will the company be able to keep paying dividend based on the future earnings growth?

How well does Huaxi Holdings fit our criteria?

Huaxi Holdings has a trailing twelve-month payout ratio of 83%, meaning the dividend is sufficiently 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. 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. Unfortunately, it is really too early to view Huaxi 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.

In terms of its peers, Huaxi Holdings produces a yield of 1.7%, which is on the low-side for Packaging stocks.

Next Steps:

Now you know to keep in mind the reason why investors should be careful investing in Huaxi Holdings 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 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 relevant aspects you should further examine:

1. Future Outlook: What are well-informed industry analysts predicting for 1689’s future growth? Take a look at our free research report of analyst consensus for 1689’s outlook.

2. Valuation: What is 1689 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 1689 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.