1 Chinese Dividend Growth Stock to Consider Buying

China bank stock buy

Tim Phillips

January 19, 2022

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For investors in today’s environment – where everything in the stock market seems to be falling – it can pay to have part of your portfolio invested in high-quality dividend stocks.

That’s because dividends provide many benefits for investors, no matter how young or old you happen to be.

Singapore offers many great dividend options, such as the many real estate investment trusts (REITs) or big banks.

However, dividend growth is also an important aspect of a successful dividend stock as you don’t want to be lured into a dividend trap via a deceptively high yield.

Hong Kong’s stock market also has many dividend stocks that are growing at a fast clip. So, with that in mind, here’s one dividend growth stock that investors can consider buying and holding for the long term.

Focusing on China’s GBA

One of the biggest listed banks in China is China Merchants Bank (SEHK: 3968), also known as CMB. Unlike its state-owned enterprise (SEO) peers, the bank hasn’t been weighed down by inefficiencies.

That’s because the bank has been focused on profitable segments of the Chinese economy while also generating a superior return on equity (ROE).

With its homebase in southern China, and with the bank exposed to the growth in the Greater Bay Area, CMB has taken a strong lead in consumer lending and wealth management in the world’s second-largest economy.

With solid capital buffers and stronger-than-average provisioning ratios, the bank has also been able to fend off concerns over its asset quality – a rare trait for a big Chinese bank.

For its latest third-quarter 2021 earnings, CMB saw net profit rise 21% year-on-year while its ROE continued to trend in the mid-teens range.

Dividend growing sustainably

What about CMB’s dividend, though? Well, the bank has been able to grow its dividend per share (DPS) at a respectable compound annual growth rate (CAGR) of 15.8% over the past 10 full calendar years (2010-2020).

For the whole of 2010, it paid a DPS of HK$0.29 while for the whole of 2020 this had grown to HK$1.253.

However, investors should be aware that CMB only pays a dividend once per year – a final dividend declared after the end of each calendar year.

It’s also worth noting that H-shares in Hong Kong (the Hong Kong-listed shares of China-listed A-share companies) also incur a 10% dividend withholding tax.

Winning over the long term

As with any long-term investing idea, it’s always advisable to go back and see how the stock has performed over longer time periods (ideally three, five and 10 years).

In this regard, CMB has done exceptionally well versus its peers and the Hang Seng Index. Over the past five and 10 years, CMB shares have delivered a total return (including dividends) of 290% and 476% respectively.

That has absolutely crushed the Hang Seng Index’s five- and 10-year total returns of 26% and 80% respectively.

As for the other state-owned banks, they’ve either delivered similar returns to the Hang Seng over the same timeframes – or fared even worse.

In the end, if investors want exposure to China’s growing economy via a bank stock that continues to execute while growing its dividend, then China Merchants Bank seems like the natural choice.

Disclaimer: ProsperUs Head of Content & Investment Lead Tim Phillips doesn’t own shares of any companies mentioned.

About the Author: Tim Phillips

Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth. He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. He is also a certified SGX Academy Trainer. In his spare time, Tim enjoys running after his two young sons, playing football and practicing yoga.