Important news for shareholders and potential investors in SINOPEC Engineering (Group) Co Ltd (HKG:2386): The dividend payment of CN¥0.10 per share will be distributed to shareholders on 30 October 2018, and the stock will begin trading ex-dividend at an earlier date, 21 September 2018. Is this future income a persuasive enough catalyst for investors to think about SINOPEC Engineering (Group) as an investment today? Below, I’m going to look at the latest data and analyze the stock and its dividend property in further detail.

See our latest analysis for SINOPEC Engineering (Group)

5 questions to ask before buying a dividend stock

Whenever I am looking at a potential dividend stock investment, I always check these five metrics:

• Is it the top 25% annual dividend yield payer?

• Does it consistently pay out dividends without missing a payment of significantly cutting payout?

• Has dividend per share amount increased over the past?

• Is its earnings sufficient to payout dividend at the current rate?

• Based on future earnings growth, will it be able to continue to payout dividend at the current rate?

How well does SINOPEC Engineering (Group) fit our criteria?

The current trailing twelve-month payout ratio for the stock is 77.0%, which means that the dividend is covered by earnings. However, going forward, analysts expect 2386’s payout to fall to 48.1% of its earnings, which leads to a dividend yield of 4.6%. However, EPS should increase to CN¥0.63, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.

When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.

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. Unfortunately, it is really too early to view SINOPEC Engineering (Group) as a dividend investment. It has only been consistently paying dividends for 5 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.

In terms of its peers, SINOPEC Engineering (Group) generates a yield of 3.4%, which is on the low-side for Construction stocks.

Next Steps:

If SINOPEC Engineering (Group) is in your portfolio for cash-generating reasons, there may be better alternatives out there. 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. Below, I’ve compiled three essential factors you should look at:

1. Future Outlook: What are well-informed industry analysts predicting for 2386’s future growth? Take a look at our free research report of analyst consensus for 2386’s outlook.

2. Valuation: What is 2386 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 2386 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.