Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. Historically, China Communications Services Corporation Limited (HKG:552) has paid a dividend to shareholders. It currently yields 2.6%. Should it have a place in your portfolio? Let’s take a look at China Communications Services in more detail.
How I analyze a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Does it pay an annual yield higher than 75% of dividend payers?
- Has it paid dividend every year without dramatically reducing payout in the past?
- Has dividend per share risen in the past couple of years?
- Is its earnings sufficient to payout dividend at the current rate?
- Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
How well does China Communications Services fit our criteria?
The current trailing twelve-month payout ratio for the stock is 29%, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting a higher payout ratio of 35% which, assuming the share price stays the same, leads to a dividend yield of around 3.0%. Furthermore, EPS should increase to CN¥0.46. The higher payout forecasted, along with higher earnings, should lead to greater dividend income for investors moving forward.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. Whilst its per-share payments have increased during the past 10 years, there has been some hiccups. Investors have seen reductions in the dividend per share in the past, although, it has picked up again.
Compared to its peers, China Communications Services has a yield of 2.6%, which is high for Telecom stocks but still below the market’s top dividend payers.
Keeping in mind the dividend characteristics above, China Communications Services is definitely worth considering for investors looking to build a dedicated income portfolio. 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. Below, I’ve compiled three fundamental aspects you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for 552’s future growth? Take a look at our free research report of analyst consensus for 552’s outlook.
- Valuation: What is 552 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 552 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.