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Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. Historically, Sinotruk (Hong Kong) Limited (HKG:3808) has been paying a dividend to shareholders. Today it yields 4.3%. Should it have a place in your portfolio? Let’s take a look at Sinotruk (Hong Kong) in more detail.

View our latest analysis for Sinotruk (Hong Kong)

5 checks you should use to assess a dividend stock

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

• Is its annual yield among the top 25% of dividend-paying companies?

• Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?

• Has it increased its dividend per share amount over the past?

• Is is able to pay the current rate of dividends from its earnings?

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

Does Sinotruk (Hong Kong) pass our checks?

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. Going forward, analysts expect 3808’s payout to increase to 50% of its earnings. Assuming a constant share price, this equates to a dividend yield of 5.1%. However, EPS is forecasted to fall to CN¥1.34 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.

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. Although 3808’s per share payments have increased in the past 10 years, it has not been a completely smooth ride. Shareholders would have seen a few years of reduced payments in this time.

In terms of its peers, Sinotruk (Hong Kong) has a yield of 4.3%, which is high for Machinery stocks but still below the market’s top dividend payers.

Next Steps:

Taking into account the dividend metrics, Sinotruk (Hong Kong) ticks most of the boxes as a strong dividend investment, putting it in my list of top dividend payers. 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 essential factors you should further research: