Over the past 10 years Hengan International Group Company Limited (HKG:1044) has been paying dividends to shareholders. The company is currently worth HK$67b, and now yields roughly 4.3%. Let’s dig deeper into whether Hengan International Group should have a place in your portfolio.
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Here’s how I find good dividend stocks
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
- Is it paying an annual yield above 75% of dividend payers?
- Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
- Has the amount of dividend per share grown over the past?
- Does earnings amply cover its dividend payments?
- Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
How well does Hengan International Group fit our criteria?
The company currently pays out 67% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is covered by earnings. However, going forward, analysts expect 1044’s payout to fall to 35% of its earnings. Assuming a constant share price, this equates to a dividend yield of around 4.5%. However, EPS should increase to CN¥3.27, 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. 1044 has increased its DPS from CN¥0.56 to CN¥2.15 in the past 10 years. During this period it has not missed a payment, as one would expect for a company increasing its dividend. This is an impressive feat, which makes 1044 a true dividend rockstar.
Relative to peers, Hengan International Group produces a yield of 4.3%, which is on the low-side for Personal Products stocks.
With these dividend metrics in mind, I definitely rank Hengan International Group as a strong income stock, and is worth further research for anyone who considers dividends an important part of their portfolio strategy. 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 important factors you should look at:
- Future Outlook: What are well-informed industry analysts predicting for 1044’s future growth? Take a look at our free research report of analyst consensus for 1044’s outlook.
- Valuation: What is 1044 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 1044 is currently mispriced by the market.
- Other 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 email@example.com.