Over the past 10 years Bank of China Limited (HKG:3988) has grown its dividend payouts from CN¥0.13 to CN¥0.18. With a market cap of HK$1.2t, Bank of China pays out 31% of its earnings, leading to a 6.4% yield. Let me elaborate on you why the stock stands out for income investors like myself.
What Is A Dividend Rock Star?
It is a stock that pays a reliable and steady dividend over the past decade, at a rate that is competitive relative to the other dividend-paying companies on the market. More specifically:
- It is paying an annual yield above 75% of dividend payers
- It has paid dividend every year without dramatically reducing payout in the past
- Its dividend per share amount has increased over the past
- It can afford to pay the current rate of dividends from its earnings
- It has the ability to keep paying its dividends going forward
High Yield And Dependable
Bank of China’s yield sits at 6.4%, which is high for Banks stocks. But the real reason Bank of China stands out is because it has a high chance of being able to continue to pay dividend at this level for years to come, something that is quite desirable if you are looking to create a portfolio that generates a steady stream of income.
Reliability 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 3988 it has increased its DPS from CN¥0.13 to CN¥0.18 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.
The company currently pays out 31% 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 3988’s payout to remain around the same level at 30% of its earnings. Assuming a constant share price, this equates to a dividend yield of 7.0%. In addition to this, EPS should increase to CN¥0.63.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
With Bank of China producing strong dividend income for your portfolio over the past few years, you can take comfort in knowing that this stock will still continue to be a top dividend generator moving forward. However, given 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. There are three important aspects you should further research:
- Future Outlook: What are well-informed industry analysts predicting for 3988’s future growth? Take a look at our free research report of analyst consensus for 3988’s outlook.
- Valuation: What is 3988 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 3988 is currently mispriced by the market.
- Other Dividend Rockstars: Are there strong dividend payers with better 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.