Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. Historically, China Resources Medical Holdings Company Limited (HKG:1515) has paid dividends to shareholders, and these days it yields 2.0%. Does China Resources Medical Holdings tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
5 questions I ask before picking a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Is it paying an annual yield above 75% of dividend payers?
- Does it consistently pay out dividends without missing a payment of significantly cutting payout?
- Has dividend per share amount increased over the past?
- Is its earnings sufficient to payout dividend at the current rate?
- Will the company be able to keep paying dividend based on the future earnings growth?
Does China Resources Medical Holdings pass our checks?
China Resources Medical Holdings has a trailing twelve-month payout ratio of 38%, meaning the dividend is sufficiently covered by earnings. However, going forward, analysts expect 1515’s payout to fall to 27% of its earnings. Assuming a constant share price, this equates to a dividend yield of 1.8%. However, EPS should increase to CN¥0.34, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
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. The reality is that it is too early to consider China Resources Medical Holdings as a dividend investment. It has only been consistently paying dividends for 5 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
Compared to its peers, China Resources Medical Holdings produces a yield of 2.0%, which is on the low-side for Healthcare stocks.
After digging a little deeper into China Resources Medical Holdings’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. I’ve put together three fundamental factors you should further research:
- Future Outlook: What are well-informed industry analysts predicting for 1515’s future growth? Take a look at our free research report of analyst consensus for 1515’s outlook.
- Valuation: What is 1515 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 1515 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 firstname.lastname@example.org.