Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. Historically, Shangri-La Asia Limited (HKG:69) has paid dividends to shareholders, and these days it yields 1.7%. Does Shangri-La Asia tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.

View our latest analysis for Shangri-La Asia

Here’s how I find good dividend stocks

When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:

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

• Has it paid dividend every year without dramatically reducing payout in the past?

• Has dividend per share risen in the past couple of years?

• Does earnings amply cover its dividend payments?

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

Does Shangri-La Asia pass our checks?

The current trailing twelve-month payout ratio for the stock is 35%, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect 69’s payout to increase to 42% of its earnings, which leads to a dividend yield of around 2.1%. Moreover, EPS should increase to $0.074. The higher payout forecasted, along with higher earnings, should lead to greater dividend income for investors 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 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 Shangri-La Asia fallen over the past 10 years, it has also been highly volatile during this time, with drops of over 25% in some years. These characteristics do not bode well for income investors seeking reliable stream of dividends.

In terms of its peers, Shangri-La Asia generates a yield of 1.7%, which is on the low-side for Hospitality stocks.

Next Steps:

After digging a little deeper into Shangri-La Asia’s yield, it’s easy to see why you should be cautious investing in the company just for the dividend. On the other hand, if you are not strictly just a dividend investor, the stock could still be offering 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 factors you should further research:

1. Future Outlook: What are well-informed industry analysts predicting for 69’s future growth? Take a look at our free research report of analyst consensus for 69’s outlook.

2. Valuation: What is 69 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 69 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.