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Hengan International Group Company Ltd (SEHK: 1044) is one of the largest hygiene product manufacturers in China. It produces products such as sanitary napkins, baby & adult diapers, tissue paper & wet wipes, among others.
In this article, I’ll highlight a number of reasons why Hengan might be a solid stock candidate for dividend investors to consider.
Solid financial track record
Investors make money from stock investment in two ways – an increase in the share price and dividend payments. Both factors, in turn, are driven by how well a company can sustain and grow its profitability in the long run.
Here, the idea is simple. A company that has a proven track record has a higher probability of sustaining its profitability in the future, which in turn, will result in a higher share price and/or dividend payments.
Personally, I believe a good track record is one that is either stable or growing over a period of at least five years.
So how did Hengan perform in the last five years? Let’s look at some numbers. From 2014-2018, the company grew its revenue from RMB 18.9 billion (US$2.67 billion) to RMB 20.5 billion. Similarly, net profit increased from RMB 3.1 billion to RMB 3.8 billion. The former was up by 8.5% while the latter improved by 22.6% during that period.
I think Hengan has demonstrated a commendable performance in the past five years in terms of growing its revenue and profit.
Another key criteria that investors should look for when investing in a company is its track record of dividend payments. Similarly, the focus is to look for stable, or even better, increasing, dividend payments over the years.
In the case of Hengan, investors would expect to see growing dividend payments in the last five years, especially since it has been growing its profitability over that period. The good news is the company did just that!
During the period, it grew its dividend per share (DPS) from RMB 2.0 in 2014 to RMB 2.20 in 2018. In fact, DPS has grown even more over the longer term, up from HK$0.72 (about RMB 0.65) in 2008.
The past is no guarantee of the future, though. Yet, Hengan’s track record of growing its dividend payment gives us some confidence that it will maintain a similar dividend policy in the future. Thus, as long as it can grow its profitability over time, dividend investors should expect to see higher dividend payments in the future.
In sum, Hengan demonstrated that it has the ability to grow its business performance, and subsequently, its dividend payout over the last five years. I strongly believe that dividend investors should keep the company on their radar as a potential long-term income stock.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Lawrence Nga doesn’t own shares in any companies mentioned.