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There is a lot to be liked about Bank of China Limited (HKG:3988) as an income stock. It has paid dividends over the past 10 years. The company currently pays out a dividend yield of 5.7% to shareholders, making it a relatively attractive dividend stock. Let’s dig deeper into whether Bank of China should have a place in your portfolio.
How I analyze a dividend stock
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
- Is its annual yield among the top 25% of dividend-paying companies?
- Has it paid dividend every year without dramatically reducing payout in the past?
- Has dividend per share amount increased over the past?
- Does earnings amply cover its dividend payments?
- Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
How well does Bank of China fit our criteria?
Bank of China has a trailing twelve-month payout ratio of 30%, which means that the dividend is covered by earnings. In the near future, analysts are predicting a higher payout ratio of 34% which, assuming the share price stays the same, leads to a dividend yield of 6.6%. In addition to this, EPS should increase to CN¥0.63. The higher payout forecasted, along with higher earnings, should lead to greater dividend income for investors moving forward.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.
If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. 3988 has increased its DPS from CN¥0.10 to CN¥0.18 in the past 10 years. It has also been paying out dividend consistently during this time, as you’d expect for a company increasing its dividend levels. These are all positive signs of a great, reliable dividend stock.
Compared to its peers, Bank of China produces a yield of 5.7%, which is high for Banks stocks.
With this in mind, I definitely rank Bank of China as a strong dividend stock, and makes it worth further research for anyone who likes steady income generation from their portfolio. 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. There are three important aspects you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for 3988’s future growth? Take a look at our free research report of analyst consensus for 3988’s outlook.
- Valuation: What is 3988 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 3988 is currently mispriced by the market.
- 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 firstname.lastname@example.org.