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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, and others.
In my previous article here, I argued that Hengan is a great dividend stock, mainly due to its solid financial track record, as well as its growing dividend.
Yet, there are actually more reasons to support this assertion. Here are another two solid reasons for dividend investors to like the company’s shares.
Balance sheet strength
Dividends are paid out to investors in the form of cash. The cash, in turn, is generally derived from one of the following sources – 1) existing cash balance 2) profits and 3) new borrowings.
In other words, a company must have enough cash on hand, or at least have the ability to borrow money (if necessary), to pay its dividend. Generally speaking, a company with a strong balance sheet has the resources needed to help fund its dividend.
In the case of Hengan, not only did it deliver a solid track record of profitability over the last five years, it also has a solid balance sheet that should sustain its dividend payment for the foreseeable future. As of 30 June 2019, Hengan had RMB 24.6 billion (US$3.43 billion) worth of cash and RMB 24.1 billion worth of debt (for a net cash balance of RMB 500 million).
Last but not least, Hengan is currently trading at an attractive dividend yield. Here are some numbers.
At the share price of HK$52.30 (as at the time of writing), the company is trading at a dividend yield of 4.8%. Comparatively, the market average’s dividend yield is at 4.0%. Here, we are using the iShares MSCI Hong Kong Index Fund (NYSEARCA: EWH) as a proxy for the market average.
In other words, dividend investors are getting a pretty good deal given the low price that they are paying to own stock in a company that exhibits all the positive factors that I have mentioned previously.
In sum, Hengan demonstrated that it has the ability to grow its business performance and dividend payout in the last five years.
What’s more, it has a strong balance sheet that will allow it sustain its current dividend payment for the foreseeable future. All that comes with an attractive dividend yield. Thus, dividend investors might find it an appealing candidate for further research.
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.