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A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. Tianjin Tianbao Energy Co., Ltd. (HKG:1671) has started paying a dividend to shareholders. It currently trades on a yield of 3.9%. Should it have a place in your portfolio? Let's take a look at Tianjin Tianbao Energy in more detail.

See our latest analysis for Tianjin Tianbao Energy

5 checks you should do on a dividend stock

When researching a dividend stock, I always follow the following screening criteria:

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

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

• Has dividend per share amount increased over the past?

• Can it afford 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?

Does Tianjin Tianbao Energy pass our checks?

The current trailing twelve-month payout ratio for the stock is 45%, meaning the dividend is sufficiently covered by earnings. Furthermore, analysts have not forecasted a dividends per share for the future, which makes it hard to determine the yield shareholders should expect, and whether the current payout is sustainable, moving forward.

When considering the sustainability of dividends, it is also worth checking the cash flow of a company. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.

If there is one thing that you want to be reliable in your life, it's dividend stocks and their constant income stream. Unfortunately, it is really too early to view Tianjin Tianbao Energy as a dividend investment. It has only been paying out dividend for the past one year. Generally, the rule of thumb for determining whether a stock is a reliable dividend payer is that it should be consistently paying dividends for the past 10 years or more. Clearly there's a long road ahead before we can ascertain whether 1671 one as a stable dividend player.

In terms of its peers, Tianjin Tianbao Energy generates a yield of 3.9%, which is on the low-side for Electric Utilities stocks.

Next Steps:

After digging a little deeper into Tianjin Tianbao Energy's yield, it's easy to see why you should be cautious investing in the company just 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. Below, I've compiled three fundamental factors you should further research:

1. Future Outlook: What are well-informed industry analysts predicting for 1671’s future growth? Take a look at our free research report of analyst consensus for 1671’s outlook.

2. Valuation: What is 1671 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 1671 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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.