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Over the past 10 years China Telecom Corporation Limited (HKG:728) has been paying dividends to shareholders. The company currently pays out a dividend yield of 2.9% to shareholders, making it a relatively attractive dividend stock. Let's dig deeper into whether China Telecom should have a place in your portfolio.
5 questions to ask before buying a dividend stock
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
- 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 dividend per share risen in the past couple of years?
- Can it afford to pay the current rate of dividends from its earnings?
- Will it be able to continue to payout at the current rate in the future?
Does China Telecom pass our checks?
The current trailing twelve-month payout ratio for the stock is 42%, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect 728's payout to remain around the same level at 40% of its earnings. Assuming a constant share price, this equates to a dividend yield of 3.3%. In addition to this, EPS should increase to CN¥0.28.
When assessing the forecast sustainability of a dividend it is also worth considering 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.
If there's one type of stock you want to be reliable, it's dividend stocks and their stable income-generating ability. 728 has increased its DPS from CN¥0.075 to CN¥0.11 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.
Relative to peers, China Telecom generates a yield of 2.9%, which is high for Telecom stocks but still below the market's top dividend payers.
Taking into account the dividend metrics, China Telecom 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, 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. I've put together three key factors you should further research:
- Future Outlook: What are well-informed industry analysts predicting for 728’s future growth? Take a look at our free research report of analyst consensus for 728’s outlook.
- Valuation: What is 728 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 728 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.