Is Zhengzhou Coal Mining Machinery Group Company Limited (HKG:564) An Attractive Dividend Stock?
Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. Historically, Zhengzhou Coal Mining Machinery Group Company Limited (HKG:564) has paid a dividend to shareholders. It currently yields 1.6%. Does Zhengzhou Coal Mining Machinery Group tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
Check out our latest analysis for Zhengzhou Coal Mining Machinery Group
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 it paying an annual yield above 75% of dividend payers?
Has it paid dividend every year without dramatically reducing payout in the past?
Has dividend per share amount increased over the past?
Is is able to pay the current rate of dividends from its earnings?
Will the company be able to keep paying dividend based on the future earnings growth?
How well does Zhengzhou Coal Mining Machinery Group fit our criteria?
The current trailing twelve-month payout ratio for the stock is 13%, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect 564’s payout to increase to 30% of its earnings. Assuming a constant share price, this equates to a dividend yield of 5.8%. Furthermore, EPS should increase to CN¥0.57. The higher payout forecasted, along with higher earnings, should lead to greater dividend income for investors moving forward.
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.
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. The reality is that it is too early to consider Zhengzhou Coal Mining Machinery Group as a dividend investment. It has only been consistently paying dividends for 6 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
Compared to its peers, Zhengzhou Coal Mining Machinery Group has a yield of 1.6%, which is on the low-side for Machinery stocks.
Next Steps:
After digging a little deeper into Zhengzhou Coal Mining Machinery Group’s yield, it’s easy to see why you should be cautious investing in the company just for the dividend. On the other hand, if you are not strictly just a dividend investor, the stock could still be offering some interesting investment opportunities. 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 pertinent factors you should further examine:
Future Outlook: What are well-informed industry analysts predicting for 564’s future growth? Take a look at our free research report of analyst consensus for 564’s outlook.
Valuation: What is 564 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 564 is currently mispriced by the market.
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.
