Want to participate in a short research study? Help shape the future of investing tools and receive a $20 prize!
Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. Historically, China Machinery Engineering Corporation (HKG:1829) has been paying a dividend to shareholders. Today it yields 4.6%. Should it have a place in your portfolio? Let’s take a look at China Machinery Engineering in more detail.
5 questions I ask before picking a dividend stock
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
- Is its annual yield among the top 25% of dividend-paying companies?
- 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?
- Will it have the ability to keep paying its dividends going forward?
Does China Machinery Engineering pass our checks?
China Machinery Engineering has a trailing twelve-month payout ratio of 35%, which means that the dividend is covered by earnings. Going forward, analysts expect 1829’s payout to increase to 42% of its earnings. Assuming a constant share price, this equates to a dividend yield of 7.1%. Furthermore, EPS should increase to CN¥0.59. The higher payout forecasted, along with higher earnings, should lead to greater dividend income for investors moving forward.
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 there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. Unfortunately, it is really too early to view China Machinery Engineering 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.
Relative to peers, China Machinery Engineering has a yield of 4.6%, which is high for Construction stocks but still below the market’s top dividend payers.
If you are building an income portfolio, then China Machinery Engineering is a complicated choice since it has some positive aspects as well as negative ones. 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, 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 factors you should further research:
- Future Outlook: What are well-informed industry analysts predicting for 1829’s future growth? Take a look at our free research report of analyst consensus for 1829’s outlook.
- Valuation: What is 1829 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 1829 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.
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 email@example.com. 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.