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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, Tsui Wah Holdings Limited (HKG:1314) has been paying a dividend to shareholders. Today it yields 7.1%. Should it have a place in your portfolio? Let’s take a look at Tsui Wah Holdings in more detail.

See our latest analysis for Tsui Wah Holdings

5 questions to ask before buying a dividend stock

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

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

• Has it paid dividend every year without dramatically reducing payout in the past?

• Has dividend per share risen in the past couple of years?

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

• Will the company be able to keep paying dividend based on the future earnings growth?

How does Tsui Wah Holdings fare?

Tsui Wah Holdings has a trailing twelve-month payout ratio of 62%, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting a payout ratio of 60%, leading to a dividend yield of around 8.1%. Furthermore, EPS should increase to HK$0.070.

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 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 Tsui Wah Holdings 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.

Compared to its peers, Tsui Wah Holdings produces a yield of 7.1%, which is high for Hospitality stocks.

Next Steps:

Taking into account the dividend metrics, Tsui Wah Holdings 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, 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 essential factors you should further research:

1. Future Outlook: What are well-informed industry analysts predicting for 1314’s future growth? Take a look at our free research report of analyst consensus for 1314’s outlook.

2. Valuation: What is 1314 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 1314 is currently mispriced by the market.

3. Other 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.