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A sizeable part of portfolio returns can be produced by dividend stocks due to their contribution to compounding returns in the long run. Historically, Tradelink Electronic Commerce Limited (HKG:536) has paid dividends to shareholders, and these days it yields 8.4%. Let’s dig deeper into whether Tradelink Electronic Commerce should have a place in your portfolio.

See our latest analysis for Tradelink Electronic Commerce

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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 paying an annual yield above 75% of dividend payers?

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

• Has dividend per share amount increased over the past?

• Can it afford to pay the current rate of dividends from its earnings?

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

Does Tradelink Electronic Commerce pass our checks?

The company currently pays out 98% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is not well-covered by its 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.

If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider the cash flow of the business. 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. Whilst its per-share payments have increased during the past 10 years, there has been some hiccups. Shareholders would have seen a few years of reduced payments in this time.

Relative to peers, Tradelink Electronic Commerce has a yield of 8.4%, which is high for IT stocks.

Next Steps:

Taking all the above into account, Tradelink Electronic Commerce is a complicated pick for dividend investors given that there are a couple of positive things about it as well as negative. 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 urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. Below, I’ve compiled three pertinent aspects you should further research: