China Yuchai International Limited (NYSE:CYD) has pleased shareholders over the past 10 years, by paying out dividends. The company is currently worth US$630m, and now yields roughly 4.4%. Should it have a place in your portfolio? Let’s take a look at China Yuchai International in more detail.
How I analyze 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 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?
- Is is able 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 Yuchai International pass our checks?
The company currently pays out 20% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is covered by earnings. Going forward, analysts expect CYD’s payout to increase to 53% of its earnings, which leads to a dividend yield of around 9.2%. However, EPS is forecasted to fall to CN¥19.23 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.
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.
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. In the case of CYD it has increased its DPS from CN¥0.68 to CN¥4.72 in the past 10 years. During this period it has not missed a payment, as one would expect for a company increasing its dividend. These are all positive signs of a great, reliable dividend stock.
Relative to peers, China Yuchai International has a yield of 4.4%, which is high for Machinery stocks.
With these dividend metrics in mind, I definitely rank China Yuchai International 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 relevant factors you should further research:
- Future Outlook: What are well-informed industry analysts predicting for CYD’s future growth? Take a look at our free research report of analyst consensus for CYD’s outlook.
- Valuation: What is CYD 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 CYD 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.