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Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. In the last few years Yunnan Water Investment Co., Limited (HKG:6839) has paid a dividend to shareholders. Today it yields 6.7%. Does Yunnan Water Investment tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.

View our latest analysis for Yunnan Water Investment

5 checks you should do on a dividend stock

When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:

• Is their annual yield among the top 25% of dividend payers?

• 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?

• 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?

Does Yunnan Water Investment pass our checks?

The current trailing twelve-month payout ratio for the stock is 38%, which means that the dividend is 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 there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. The reality is that it is too early to consider Yunnan Water Investment as a dividend investment. It has only been consistently paying dividends for 3 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.

In terms of its peers, Yunnan Water Investment produces a yield of 6.7%, which is high for Water Utilities stocks.

Next Steps:

If you are building an income portfolio, then Yunnan Water Investment is a complicated choice since it has some positive aspects as well as negative ones. 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’s fundamentals and underlying business before making an investment decision. Below, I’ve compiled three key aspects you should further examine:

1. Future Outlook: What are well-informed industry analysts predicting for 6839’s future growth? Take a look at our free research report of analyst consensus for 6839’s outlook.

2. Historical Performance: What has 6839’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.

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.