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Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. Wisdom Education International Holdings Company Limited (HKG:6068) has paid a dividend to shareholders in the last few years. It currently yields 2.4%. Let’s dig deeper into whether Wisdom Education International Holdings should have a place in your portfolio.

View our latest analysis for Wisdom Education International Holdings

How I analyze a dividend stock

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

• Is their annual yield among the top 25% of dividend payers?

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

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

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

• Will it be able to continue to payout at the current rate in the future?

Does Wisdom Education International Holdings pass our checks?

The current trailing twelve-month payout ratio for the stock is 45%, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect 6068’s payout to remain around the same level at 45% of its earnings. Assuming a constant share price, this equates to a dividend yield of 3.7%. In addition to this, EPS should increase to CN¥0.20.

When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.

If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. The reality is that it is too early to consider Wisdom Education International Holdings as a dividend investment. It has only been consistently paying dividends for 2 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.

In terms of its peers, Wisdom Education International Holdings has a yield of 2.4%, which is high for Consumer Services stocks but still below the market’s top dividend payers.

Next Steps:

If Wisdom Education International Holdings is in your portfolio for cash-generating reasons, there may be better alternatives out there. However, if you are not strictly just a dividend investor, the stock could still offer some interesting investment opportunities. 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. I’ve put together three essential aspects you should further examine: