Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. Historically, China Shenhua Energy Company Limited (HKG:1088) has paid dividends to shareholders, and these days it yields 5.6%. Let’s dig deeper into whether China Shenhua Energy should have a place in your portfolio.
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Here’s how I find good dividend stocks
When researching a dividend stock, I always follow the following screening criteria:
- Is their annual yield among the top 25% of dividend payers?
- Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
- Has the amount of dividend per share grown over the past?
- Does earnings amply cover its dividend payments?
- Will it have the ability to keep paying its dividends going forward?
How well does China Shenhua Energy fit our criteria?
The current trailing twelve-month payout ratio for the stock is 39%, which means that the dividend is covered by earnings. In the near future, analysts are predicting a payout ratio of 42% which, assuming the share price stays the same, leads to a dividend yield of around 5.6%. In addition to this, EPS is forecasted to fall to CN¥2.24 in the upcoming year.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.
If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. Although 1088’s per share payments have increased in the past 10 years, it has not been a completely smooth ride. Shareholders would have seen a few years of reduced payments in this time.
In terms of its peers, China Shenhua Energy produces a yield of 5.6%, which is high for Oil and Gas stocks but still below the market’s top dividend payers.
Keeping in mind the dividend characteristics above, China Shenhua Energy is definitely worth considering for investors looking to build a dedicated income portfolio. 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 aspects you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for 1088’s future growth? Take a look at our free research report of analyst consensus for 1088’s outlook.
- Valuation: What is 1088 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 1088 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.