Today we’ll take a closer look at Chongqing Rural Commercial Bank Co., Ltd. (HKG:3618) from a dividend investor’s perspective. Owning a strong dividend company and reinvesting the dividends is widely seen as an attractive way of growing your wealth. If you are hoping to live on your dividends, it’s important to be more stringent with your investments than the average punter. Regular readers know we like to apply the same approach to each dividend stock, and we hope you’ll find our analysis useful.
With a goodly-sized dividend yield despite a relatively short payment history, investors might be wondering if Chongqing Rural Commercial Bank is a new dividend aristocrat in the making. It sure looks interesting on these metrics – but there’s always more to the story . Some simple analysis can offer a lot of insight when buying a company for its dividend, and we’ll go through these below.Explore this interactive chart for our latest analysis on Chongqing Rural Commercial Bank!
Companies (usually) pay dividends out of their earnings. If a company is paying more than it earns, the dividend might have to be cut. So we need to be form a view on if a company’s dividend is sustainable, relative to its net profit after tax. In the last year, Chongqing Rural Commercial Bank paid out 22% of its profit as dividends. Given the low payout ratio, it is hard to envision the dividend coming under threat, barring a catastrophe.
Remember, you can always get a snapshot of Chongqing Rural Commercial Bank’s latest financial position, by checking our visualisation of its financial health.
Before buying a stock for its income, we want to see if the dividends have been stable in the past, and if the company has a track record of maintaining its dividend. The first recorded dividend for Chongqing Rural Commercial Bank, in the last decade, was eight years ago. The company has been paying a stable dividend for a while now, which is great. However we’d prefer to see consistency for a few more years before giving it our full seal of approval. During the past eight-year period, the first annual payment was CN¥0.06 in 2011, compared to CN¥0.20 last year. This works out to be a compound annual growth rate (CAGR) of approximately 16% a year over that time.
Chongqing Rural Commercial Bank has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.
Dividend Growth Potential
The other half of the dividend investing equation is evaluating whether earnings per share (EPS) are growing. Growing EPS can help maintain or increase the purchasing power of the dividend over the long run. Chongqing Rural Commercial Bank has grown its earnings per share at 7.1% per annum over the past five years. A low payout ratio and strong historical earnings growth suggests Chongqing Rural Commercial Bank has been effectively reinvesting in its business. We think this generally bodes well for its dividend prospects.
Dividend investors should always want to know if a) a company’s dividends are affordable, b) if there is a track record of consistent payments, and c) if the dividend is capable of growing. Firstly, we like that Chongqing Rural Commercial Bank has a low and conservative payout ratio. Unfortunately, earnings growth has also been mediocre, and we think it has not been paying dividends long enough to demonstrate resilience across economic cycles. While we’re not hugely bearish on it, overall we think there are potentially better dividend stocks than Chongqing Rural Commercial Bank out there.
Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 11 analysts we track are forecasting for Chongqing Rural Commercial Bank for free with public analyst estimates for the company.
Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield above 3%.
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.