Dividend paying stocks like Quanzhou Huixin Micro-Credit Co., Ltd. (HKG:1577) tend to be popular with investors, and for good reason – some research suggests a significant amount of all stock market returns come from reinvested dividends. If you are hoping to live on your dividends, it’s important to be more stringent with your investments than the average punter. Regular readers know we like to apply the same approach to each dividend stock, and we hope you’ll find our analysis useful.
Quanzhou Huixin Micro-Credit yields a solid 4.0%, although it has only been paying for three years. A high yield probably looks enticing, but investors are likely wondering about the short payment history. Some simple analysis can offer a lot of insights when buying a company for its dividend, and we’ll go through this below.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. As a result, we should always investigate whether a company can afford its dividend, measured as a percentage of a company’s net income after tax. Quanzhou Huixin Micro-Credit paid out 40% of its profit as dividends, over the trailing twelve month period. This is a medium payout level that leaves enough capital in the…