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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. Historically, Shenzhen Expressway Company Limited (HKG:548) has been paying a dividend to shareholders. Today it yields 4.6%. Let’s dig deeper into whether Shenzhen Expressway should have a place in your portfolio.
Check out our latest analysis for Shenzhen Expressway
How I analyze a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
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Does it pay an annual yield higher than 75% of dividend payers?
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Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
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Has dividend per share risen in the past couple of years?
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Is is able to pay the current rate of dividends from its earnings?
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Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
How well does Shenzhen Expressway fit our criteria?
The current trailing twelve-month payout ratio for the stock is 37%, which means that the dividend is covered by earnings. In the near future, analysts are predicting a higher payout ratio of 47%, leading to a dividend yield of around 6.7%. In addition to this, EPS should increase to CN¥0.93. 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’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. Although 548’s per share payments have increased in the past 10 years, it has not been a completely smooth ride. Investors have seen reductions in the dividend per share in the past, although, it has picked up again.
Compared to its peers, Shenzhen Expressway produces a yield of 4.6%, which is high for Infrastructure stocks but still below the market’s top dividend payers.
Next Steps:
Keeping in mind the dividend characteristics above, Shenzhen Expressway is definitely worth considering for investors looking to build a dedicated income portfolio. 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 fundamental factors you should further research: