A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. Historically, PetroChina Company Limited (HKG:857) has been paying a dividend to shareholders. Today it yields 4.0%. Should it have a place in your portfolio? Let’s take a look at PetroChina in more detail.
5 checks you should use to assess a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Is their annual yield among the top 25% of dividend payers?
- Has it paid dividend every year without dramatically reducing payout in the past?
- Has it increased its dividend per share amount over the past?
- Is is able to pay the current rate of dividends from its earnings?
- Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
How well does PetroChina fit our criteria?
PetroChina has a trailing twelve-month payout ratio of 53%, which means that the dividend is covered by earnings. Going forward, analysts expect 857’s payout to remain around the same level at 53% of its earnings. Assuming a constant share price, this equates to a dividend yield of around 4.3%. Moreover, EPS should increase to CN¥0.32.
When assessing the forecast sustainability of a dividend it is also worth considering 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. Dividend payments from PetroChina have been volatile in the past 10 years, with some years experiencing significant drops of over 25%. This means that dividend hunters should probably steer clear of the stock, at least for now until the track record improves.
Relative to peers, PetroChina produces a yield of 4.0%, which is on the low-side for Oil and Gas stocks.
Taking all the above into account, PetroChina is a complicated pick for dividend investors given that there are a couple of positive things about it as well as negative. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. 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. I’ve put together three important aspects you should look at:
- Future Outlook: What are well-informed industry analysts predicting for 857’s future growth? Take a look at our free research report of analyst consensus for 857’s outlook.
- Valuation: What is 857 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 857 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.
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 email@example.com. 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.