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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. Xiabuxiabu Catering Management (China) Holdings Co Ltd (HKG:520) has recently paid dividends to shareholders, and currently yields 1.5%. Does Xiabuxiabu Catering Management (China) Holdings tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.

Check out our latest analysis for Xiabuxiabu Catering Management (China) Holdings

5 checks you should use to assess 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 dividend per share risen in the past couple of years?

• 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 does Xiabuxiabu Catering Management (China) Holdings fare?

The company currently pays out 40% of its earnings as a dividend, according to its trailing twelve-month data, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting a payout ratio of 41%, leading to a dividend yield of around 2.3%. In addition to this, EPS should increase to CN¥0.51.

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 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. The reality is that it is too early to consider Xiabuxiabu Catering Management (China) 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, Xiabuxiabu Catering Management (China) Holdings generates a yield of 1.5%, which is on the low-side for Hospitality stocks.

Next Steps:

Now you know to keep in mind the reason why investors should be careful investing in Xiabuxiabu Catering Management (China) 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, 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. There are three relevant aspects you should further research: