Should You Buy SJM Holdings Limited (HKG:880) For Its Dividend?

A sizeable part of portfolio returns can be produced by dividend stocks due to their contribution to compounding returns in the long run. Historically, SJM Holdings Limited (HKG:880) has paid dividends to shareholders, and these days it yields 3.2%. Should it have a place in your portfolio? Let’s take a look at SJM Holdings in more detail.

Check out our latest analysis for SJM Holdings

5 questions I ask before picking a dividend stock

If you are a dividend investor, you should always assess these five key metrics:

• Is it paying an annual yield above 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?

• Can it afford to pay the current rate of dividends from its earnings?

• Will it be able to continue to payout at the current rate in the future?

SEHK:880 Historical Dividend Yield January 10th 19

Does SJM Holdings pass our checks?

The current trailing twelve-month payout ratio for the stock is 52%, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting a payout ratio of 54% which, assuming the share price stays the same, leads to a dividend yield of 3.5%. Furthermore, EPS is forecasted to fall to HK$0.40 in the upcoming year.

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 is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. 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.

In terms of its peers, SJM Holdings has a yield of 3.2%, which is on the low-side for Hospitality stocks.

Next Steps:

With these dividend metrics in mind, I definitely rank SJM Holdings as a strong income stock, and is worth further research for anyone who considers dividends an important part of their portfolio strategy. 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. I’ve put together three pertinent aspects you should further research:

1. Future Outlook: What are well-informed industry analysts predicting for 880’s future growth? Take a look at our free research report of analyst consensus for 880’s outlook.

2. Valuation: What is 880 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 880 is currently mispriced by the market.

3. 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 editorial-team@simplywallst.com.