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Number Cruncher Seeking Chinese dividend-payers that can breeze through tariff wars

What are we looking for?

Sustainable dividends from Chinese firms well placed to weather tariff volatility.

The screen

Chinese markets continue to reflect the uncertainty of U.S.-China trade talks. Still, over all, they’ve moved up since the start of the year, reflecting some optimism. The best Chinese stocks are likely to move higher still on a successful resolution of the tariff war and China’s return to faster economic growth.

Either way, to cut risk, Canadian investors interested in China should stick with companies that enjoy solid government support and have strong positions in one – if not several – of the country’s vast domestic markets.

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For added investment safety, we focused on Chinese firms that have steady growth prospects and American depositary receipts (ADRs) trading either on a U.S. exchange or “over the counter” through a dealer network. We then applied our TSI Dividend Sustainability Rating System. It awards points to a dividend-payer based on key factors:

  • One point for five years of continuous dividend payments – two points for more than five;
  • Two points if it has raised the payment in the past five years;
  • One point for management’s commitment to dividends;
  • One point for operating in non-cyclical industries;
  • One point for limited exposure to foreign currency rates and freedom from political interference;
  • Two points for a strong balance sheet, including manageable debt and adequate cash;
  • Two points for a long-term record of positive earnings and cash flow sufficient to cover dividend payments;
  • One point if the company is a leader in its industry.

Companies with 10 to 12 points have the most secure dividends, or the highest sustainability. Those with seven to nine points have above-average sustainability; average sustainability, four to six points; and below-average sustainability, one to three points. (It should be noted in passing that, not surprisingly, none of the ADRs in this Number Cruncher scored a point for “freedom from political interference.”)

More about TSI Network

TSI Network is the online home of The Successful Investor Inc. – the group of widely followed Canadian investment newsletters by editor and publisher Pat McKeough. They include our award-winning flagship newsletter, The Successful Investor. The TSI Best ETFs for Canadian Investors is the latest. TSI Network is also affiliated with Successful Investor Wealth Management.

What we found

Our TSI Dividend Sustainability Rating System generated seven Chinese ADRs ready to move higher, while sustaining dividends. PetroChina Co. Ltd. and CNOOC Ltd. are two of China’s largest oil and gas companies. Competitor China Petroleum & Chemical Corp. (known as Sinopec) also manages petrochemical plants and refineries. The giant Bank of China Ltd. operates nationwide – as do China Mobile Ltd. and China Telecom Corp. Ltd., which hold international interests as well. Ping An Insurance (Group) Co. of China Ltd. is the country’s biggest insurer, but also leads its nascent wealth management industry.

We advise investors to do additional research on any investments we identify here.

Select Chinese stocks with sustainable dividends (ADRs)

Ranking*CompanyTickerDividend Sustainability RatingPointsDiv. Yield (%)Market Cap (US$ Bil)Recent Price (US$)1Yr Total Return (%)
1Bank of China Ltd.BACHY-OTCAbove Average96.039.511.72-14.8
2China Mobile Ltd.CHL-NAbove Average93.8226.955.7020.6
3China Telecom Corp. Ltd. CHA-NAbove Average92.645.556.0530.0
4Ping An Insurance (Group) Co. of China Ltd. PNGAY-OTCAbove Average91.3204.822.51-6.5
5China Petroleum & Chemical Corp. SNP-NAbove Average84.9103.485.091.0
6CNOOC Ltd. CEO-NAbove Average84.378.8178.6820.6
7PetroChina Co. Ltd.PTR-NAbove Average82.5123.968.60-0.8

Source: Dividend Advisor 

Ranking is determined by TSI Dividend Sustainability Score. Where overall points are the same, analysts considered P/E, dividend yield and industry outlook to decide final placements. 

Scott Clayton, MBA, is senior analyst for TSI Network and associate editor of TSI Dividend Advisor.

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