There is a lot to be liked about China Dongxiang (Group) Co Ltd (HKG:3818) as an income stock. It has paid dividends over the past 10 years. The company is currently worth HK$7.3b, and now yields roughly 8.4%. Does China Dongxiang (Group) tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
How I analyze a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
- Is it the top 25% annual dividend yield payer?
- Has it paid dividend every year without dramatically reducing payout in the past?
- Has dividend per share risen in the past couple of years?
- Does earnings amply cover its dividend payments?
- Will it have the ability to keep paying its dividends going forward?
How well does China Dongxiang (Group) fit our criteria?
The current trailing twelve-month payout ratio for the stock is 29%, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect 3818’s payout to increase to 60% of its earnings, which leads to a dividend yield of 7.1%. However, EPS is forecasted to fall to CN¥0.13 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.
If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider 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.
Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. Although 3818’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, China Dongxiang (Group) produces a yield of 8.4%, which is high for Luxury stocks.
Taking into account the dividend metrics, China Dongxiang (Group) ticks most of the boxes as a strong dividend investment, putting it in my list of top dividend payers. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. Below, I’ve compiled three essential aspects you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for 3818’s future growth? Take a look at our free research report of analyst consensus for 3818’s outlook.
- Valuation: What is 3818 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 3818 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 email@example.com.