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Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. Quanzhou Huixin Micro-Credit Co., Ltd. (HKG:1577) has paid a dividend to shareholders in the last few years. It currently yields 4.1%. Let's dig deeper into whether Quanzhou Huixin Micro-Credit should have a place in your portfolio.

See our latest analysis for Quanzhou Huixin Micro-Credit

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 its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?

• Has it increased its dividend per share amount over the past?

• Does earnings amply cover its dividend payments?

• Based on future earnings growth, will it be able to continue to payout dividend at the current rate?

Does Quanzhou Huixin Micro-Credit pass our checks?

The current trailing twelve-month payout ratio for the stock is 39%, meaning the dividend is sufficiently covered by earnings. Furthermore, analysts have not forecasted a dividends per share for the future, which makes it hard to determine the yield shareholders should expect, and whether the current payout is sustainable, moving forward.

When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. 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. The reality is that it is too early to consider Quanzhou Huixin Micro-Credit as a dividend investment. It has only been consistently paying dividends for 2 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.

Compared to its peers, Quanzhou Huixin Micro-Credit generates a yield of 4.1%, which is on the low-side for Consumer Finance stocks.

Next Steps:

Now you know to keep in mind the reason why investors should be careful investing in Quanzhou Huixin Micro-Credit 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, 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 pertinent aspects you should look at:

1. Future Outlook: What are well-informed industry analysts predicting for 1577’s future growth? Take a look at our free research report of analyst consensus for 1577’s outlook.

2. Valuation: What is 1577 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 1577 is currently mispriced by the market.

3. 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 editorial-team@simplywallst.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.