Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. Historically, Lee and Man Paper Manufacturing Limited (HKG:2314) has paid dividends to shareholders, and these days it yields 6.0%. Does Lee and Man Paper Manufacturing tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
How I analyze a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
- Is their annual yield among the top 25% of dividend payers?
- Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
- Has dividend per share risen in the past couple of years?
- Can it afford to pay the current rate of dividends from its earnings?
- Will the company be able to keep paying dividend based on the future earnings growth?
How well does Lee and Man Paper Manufacturing fit our criteria?
The current trailing twelve-month payout ratio for the stock is 31%, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting a payout ratio of 31%, leading to a dividend yield of 5.5%. Furthermore, EPS is forecasted to fall to HK$1.17 in the upcoming year.
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. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
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. Whilst its per-share payments have increased during the past 10 years, there has been some hiccups. Shareholders would have seen a few years of reduced payments in this time.
Relative to peers, Lee and Man Paper Manufacturing produces a yield of 6.0%, which is high for Forestry stocks but still below the market’s top dividend payers.
Taking into account the dividend metrics, Lee and Man Paper Manufacturing ticks most of the boxes as a strong dividend investment, putting it in my list of top dividend payers. 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. I’ve put together three essential aspects you should look at:
- Future Outlook: What are well-informed industry analysts predicting for 2314’s future growth? Take a look at our free research report of analyst consensus for 2314’s outlook.
- Valuation: What is 2314 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 2314 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 firstname.lastname@example.org.