Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. Historically, Zhongsheng Group Holdings Limited (HKG:881) has paid a dividend to shareholders. It currently yields 1.9%. Does Zhongsheng Group Holdings tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.

Check out our latest analysis for Zhongsheng Group Holdings

5 questions I ask before picking a dividend stock

If you are a dividend investor, you should always assess these five key metrics:

• 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 the amount of dividend per share grown over the past?

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

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

How well does Zhongsheng Group Holdings fit our criteria?

Zhongsheng Group Holdings has a trailing twelve-month payout ratio of 17.8%, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect 881’s payout to increase to 21.6% of its earnings, which leads to a dividend yield of around 2.8%. Furthermore, EPS should increase to CN¥1.87. The higher payout forecasted, along with higher earnings, should lead to greater dividend income for investors moving forward.

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 Zhongsheng Group Holdings as a dividend investment. It has only been consistently paying dividends for 7 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.

Compared to its peers, Zhongsheng Group Holdings generates a yield of 1.9%, which is on the low-side for Specialty Retail stocks.

Next Steps:

Taking all the above into account, Zhongsheng Group Holdings 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 recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. Below, I’ve compiled three important factors you should further research:

1. Future Outlook: What are well-informed industry analysts predicting for 881’s future growth? Take a look at our free research report of analyst consensus for 881’s outlook.

2. Valuation: What is 881 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 881 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.

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.