A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. Historically, China Life Insurance Company Limited (HKG:2628) has paid a dividend to shareholders. It currently yields 2.1%. Let‚Äôs dig deeper into whether China Life Insurance should have a place in your portfolio.
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
The company currently pays out 103% of its earnings as a dividend, according to its trailing twelve-month data, meaning the dividend is not sufficiently covered by its earnings. In the near future, analysts are predicting a more sensible payout ratio of 38%, which, assuming the share price stays the same, leads to a dividend yield of 2.7%. In addition to this, EPS should increase to CN¬•1.24, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
If there is one thing that you want to be reliable in your life, it‚Äôs dividend stocks and their constant income stream. Not only have dividend payouts from China Life Insurance fallen over the past 10 years, it has also been highly volatile during this time, with drops of over 25% in some years. This means that dividend hunters should probably steer clear of the stock, at least for now until the track record improves.
In terms of its peers, China Life Insurance generates a yield of 2.1%, which is high for Insurance stocks but still below the market‚Äôs top dividend payers.
After digging a little deeper into China Life Insurance‚Äôs yield, it‚Äôs easy to see why you should be cautious investing in the company just for the dividend. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. 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‚Äôs fundamentals and underlying business before making an investment decision. There are three essential factors you should further research:
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 protected]. 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.
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