Is Hang Seng Bank Limited (HKG:11) A Great Dividend Stock?
A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. Historically, Hang Seng Bank Limited (HKG:11) has been paying a dividend to shareholders. Today it yields 3.3%. Does Hang Seng Bank tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
Check out our latest analysis for Hang Seng Bank
5 questions to ask before buying a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
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?
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 Hang Seng Bank fare?
Hang Seng Bank has a trailing twelve-month payout ratio of 58.6%, which means that the dividend is covered by earnings. Going forward, analysts expect 11’s payout to remain around the same level at 62.1% of its earnings, which leads to a dividend yield of around 4.0%. Furthermore, EPS should increase to HK$12.75.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.
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. Although 11’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.
Compared to its peers, Hang Seng Bank generates a yield of 3.3%, which is on the low-side for Banks stocks.
Next Steps:
With these dividend metrics in mind, I definitely rank Hang Seng Bank as a strong income stock, and is worth further research for anyone who considers dividends an important part of their portfolio strategy. 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. There are three key aspects you should further examine:
Future Outlook: What are well-informed industry analysts predicting for 11’s future growth? Take a look at our free research report of analyst consensus for 11’s outlook.
Valuation: What is 11 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 11 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 editorial-team@simplywallst.com.
