A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. Historically, Beijing Tong Ren Tang Chinese Medicine Company Limited (HKG:3613) has been paying a dividend to shareholders. Today it yields 1.5%. Should it have a place in your portfolio? Let’s take a look at Beijing Tong Ren Tang Chinese Medicine in more detail.
5 questions I ask before picking a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
- Does it pay an annual yield higher than 75% of dividend payers?
- Does it consistently pay out dividends without missing a payment of significantly cutting payout?
- 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 it be able to continue to payout at the current rate in the future?
How well does Beijing Tong Ren Tang Chinese Medicine fit our criteria?
The company currently pays out 29% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is covered by earnings. Going forward, analysts expect 3613’s payout to increase to 33% of its earnings. Assuming a constant share price, this equates to a dividend yield of around 2.0%. Moreover, EPS should increase to HK$0.75. The higher payout forecasted, along with higher earnings, should lead to greater dividend income for investors moving forward.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. 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 Beijing Tong Ren Tang Chinese Medicine 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.
Relative to peers, Beijing Tong Ren Tang Chinese Medicine produces a yield of 1.5%, which is on the low-side for Pharmaceuticals stocks.
After digging a little deeper into Beijing Tong Ren Tang Chinese Medicine’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 urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. There are three key factors you should further research:
- Future Outlook: What are well-informed industry analysts predicting for 3613’s future growth? Take a look at our free research report of analyst consensus for 3613’s outlook.
- Valuation: What is 3613 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 3613 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 email@example.com.