Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. Historically, Grand Baoxin Auto Group Limited (HKG:1293) has paid a dividend to shareholders. It currently yields 3.9%. Let’s dig deeper into whether Grand Baoxin Auto Group should have a place in your portfolio.
5 questions I ask before picking a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
- Is their annual yield among the top 25% 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 have the ability to keep paying its dividends going forward?
Does Grand Baoxin Auto Group pass our checks?
The current trailing twelve-month payout ratio for the stock is 30%, which means that the dividend is covered by earnings. However, going forward, analysts expect 1293’s payout to fall to 27% of its earnings. Assuming a constant share price, this equates to a dividend yield of around 4.5%. However, EPS should increase to CN¥0.29, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
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. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.
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 Grand Baoxin Auto Group as a dividend investment. It has only been consistently paying dividends for 6 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
Compared to its peers, Grand Baoxin Auto Group produces a yield of 3.9%, which is on the low-side for Specialty Retail stocks.
Whilst there are few things you may like about Grand Baoxin Auto Group from a dividend stock perspective, the truth is that overall it probably is not the best choice for a dividend investor. However, if you are not strictly just a dividend investor, the stock could still offer 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 pertinent aspects you should look at:
- Future Outlook: What are well-informed industry analysts predicting for 1293’s future growth? Take a look at our free research report of analyst consensus for 1293’s outlook.
- Valuation: What is 1293 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 1293 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.