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Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. Historically, Zhengzhou Coal Mining Machinery Group Company Limited (HKG:564) has paid a dividend to shareholders. It currently yields 1.5%. Should it have a place in your portfolio? Let’s take a look at Zhengzhou Coal Mining Machinery Group in more detail.
View our latest analysis for Zhengzhou Coal Mining Machinery Group
5 checks you should use to assess 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?
- Does it consistently pay out dividends without missing a payment of significantly cutting payout?
- Has it increased its dividend per share amount over the past?
- Is is able to pay the current rate of dividends from its earnings?
- Will it have the ability to keep paying its dividends going forward?
Does Zhengzhou Coal Mining Machinery Group pass our checks?
The current trailing twelve-month payout ratio for the stock is 13%, which means that the dividend is covered by earnings. In the near future, analysts are predicting a higher payout ratio of 30% which, assuming the share price stays the same, leads to a dividend yield of around 5.7%. Furthermore, EPS should increase to CN¥0.59. The higher payout forecasted, along with higher earnings, should lead to greater dividend income for investors moving forward.
If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider 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 dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. Unfortunately, it is really too early to view 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.
In terms of its peers, Zhengzhou Coal Mining Machinery Group generates a yield of 1.5%, which is on the low-side for Machinery stocks.
Next Steps:
Now you know to keep in mind the reason why investors should be careful investing in Zhengzhou Coal Mining Machinery Group 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, 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 pertinent factors you should look at:
- 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.