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Should You Buy Precision Tsugami (China) Corporation Limited (HKG:1651) For Its Dividend?

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Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. Precision Tsugami (China) Corporation Limited (HKG:1651) has begun paying dividends recently. It now yields 2.7%. Should it have a place in your portfolio? Let’s take a look at Precision Tsugami (China) in more detail.

View our latest analysis for Precision Tsugami (China)

5 checks you should use to assess a dividend stock

When researching a dividend stock, I always follow the following screening criteria:

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  • Is its annual yield among the top 25% of dividend-paying companies?

  • Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?

  • Has the amount of dividend per share grown over the past?

  • Is is able to pay the current rate of dividends from its earnings?

  • Will it have the ability to keep paying its dividends going forward?

SEHK:1651 Historical Dividend Yield February 4th 19
SEHK:1651 Historical Dividend Yield February 4th 19

Does Precision Tsugami (China) pass our checks?

The company currently pays out 37% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is covered by earnings. In the near future, analysts are predicting lower payout ratio of 30% which, assuming the share price stays the same, leads to a dividend yield of 4.5%. However, EPS should increase to CN¥0.91, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.

When considering the sustainability of dividends, it is also worth checking the cash flow of a company. 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 Precision Tsugami (China) as a dividend investment. Last year was the company’s first dividend payment, so it is certainly early days. The standard practice for reliable payers is to look for 10 or so years of track record.

Relative to peers, Precision Tsugami (China) generates a yield of 2.7%, which is on the low-side for Machinery stocks.

Next Steps:

Taking all the above into account, Precision Tsugami (China) is a complicated pick for dividend investors given that there are a couple of positive things about it as well as negative. 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 key aspects you should further research:

  1. Future Outlook: What are well-informed industry analysts predicting for 1651’s future growth? Take a look at our free research report of analyst consensus for 1651’s outlook.

  2. Valuation: What is 1651 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 1651 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.

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 editorial-team@simplywallst.com.