China Telecom Corporation Limited (HKG:728) has pleased shareholders over the past 10 years, by paying out dividends. The company is currently worth HK$342b, and now yields roughly 2.6%. Should it have a place in your portfolio? Let’s take a look at China Telecom in more detail.
5 questions to ask before buying 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?
- Has it consistently paid a stable dividend without missing a payment or drastically 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 the company be able to keep paying dividend based on the future earnings growth?
How well does China Telecom fit our criteria?
The company currently pays out 39% of its earnings as a dividend, according to its trailing twelve-month data, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect 728’s payout to remain around the same level at 40% of its earnings. Assuming a constant share price, this equates to a dividend yield of 3.2%. Moreover, EPS should increase to CN¥0.26.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.
If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. In the case of 728 it has increased its DPS from CN¥0.076 to CN¥0.094 in the past 10 years. It has also been paying out dividend consistently during this time, as you’d expect for a company increasing its dividend levels. These are all positive signs of a great, reliable dividend stock.
Compared to its peers, China Telecom produces a yield of 2.6%, which is high for Telecom stocks but still below the market’s top dividend payers.
Taking into account the dividend metrics, China Telecom 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. There are three fundamental factors you should look at:
- Future Outlook: What are well-informed industry analysts predicting for 728’s future growth? Take a look at our free research report of analyst consensus for 728’s outlook.
- Valuation: What is 728 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 728 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.