How to Invest in Tencent

Tencent (TCEHY -2.41%) is a Chinese technology behemoth. Its communications and social services connect more than 1 billion people. It also publishes some of the world's most popular video games. In addition, Tencent provides a range of services, including cloud computing, advertising, and financial technology. In many ways, Tencent is like many of the top U.S. technology companies all rolled into one.

A big part of Tencent is its uber-popular WeChat/Weixin super app. The platform enables users to send messages, share photos and videos, shop online, and make payments. Tencent had more than 1.3 billion monthly active users of WeChat/Weixin at the end of 2023.

Tencent's diversified portfolio of leading technology and e-commerce businesses has many people interested in learning about its stock. This guide will teach you everything you need to know about Tencent and how to invest in the Chinese tech stock.

How to invest

How to buy Tencent stock

Tencent listed its stock on the Hong Kong Stock Exchange in 2004. Although the company hasn't listed its stock on a major U.S. stock exchange like the NYSE or Nasdaq Stock Exchange, shares trade on the OTC Market Exchange under the stock ticker TCEHY, so you can buy shares through most online brokers and trading platforms.

Anyone interested in investing in the Chinese e-commerce stock will need to take a few steps before becoming a shareholder. This four-step guide will show you how to invest in stocks and add Tencent to your portfolio.

Step 1: Open a brokerage account

You'll want to open and fund a brokerage account before buying shares of any company. If you need to open one, here are some of the best-rated brokers and trading platforms. Take your time to research the brokers to find the best one for you. As part of your research, make sure your selected broker allows you to buy shares that trade on the OTC Markets Exchange.

Step 2: Figure out your budget

Before making your first trade, you'll need to determine a budget for how much money you want to invest. You'll then want to figure out how to allocate that money. The Motley Fool's investing philosophy recommends building a diversified portfolio of 25 or more stocks you plan to hold for at least five years.

You don't need to buy all those stocks at once. Beginners should ease into investing by starting small. For example, if you have $1,000 to invest, you can start by building a portfolio of around 10 stocks, investing roughly $100 in each stock. You can grow from there as you add money to your account and become more comfortable investing in the stock market.

Step 3: Do your research

It's essential to thoroughly research a company before buying its shares. You should learn about its competitors, its balance sheet, how it makes money, and other factors to make sure you have a solid grasp on whether the company can grow value for its shareholders over the long term. You also need to ensure you understand the added risks of investing internationally, especially in companies headquartered in China. Continue reading to learn more about some crucial factors to consider before investing in Tencent stock.

Step 4: Place an order

Once you've opened and funded a brokerage account, set your investing budget, and researched the stock, it's time to buy shares. The process is relatively straightforward. Go to your brokerage account's order page and fill out all the relevant information, including:

• The number of shares you want to buy or the amount you want to invest to purchase fractional shares.
• The stock ticker (TCEHY for Tencent).
• Whether you want to place a limit order or a market order. (The Motley Fool recommends using a market order since it guarantees you buy shares immediately at market price.)

Here's a screenshot of how to buy a stock with the five-star-rated platform Fidelity (which offers a video tutorial and a step-by-step guide):

Once you complete the order page, click to submit your trade and become a Tencent shareholder.

Should I invest?

Should I invest in Tencent?

Not every stock will be right for you. You need to make sure your portfolio matches your risk tolerance, return expectations, and values.

With that in mind, here are some reasons why you might want to invest in Tencent:

• You're comfortable with the risks of investing in a Chinese company.
• Buying Tencent would help diversify your portfolio by adding an international stock.
• You don't need a lot of dividend income right now.
• You think Tencent can continue to deliver healthy revenue and profit growth.
• You believe China's economy will continue growing briskly in the future.
• You want to invest in one of China's biggest technology companies.
• You think the company can continue to grow its WeChat/Weixin super app.
• You believe Tencent can continue to outperform the market.

On the other hand, here's why Tencent might not be a good stock for you to buy:

• You don't understand what Tencent does or how it makes money.
• You're concerned about the risks of investing in a Chinese company.
• You need more dividend income than Tencent can provide.
• You're worried about foreign exchange risks.
• You only want to invest in companies listed on a major U.S. stock exchange.
• You're not sure Tencent can outperform the market over the next few years.
• You already own several technology, e-commerce, or social media stocks in your portfolio.

Profitability

Is Tencent profitable?

Profits are the fuel of business. They enable companies to fund their operations and expansion. They're crucial for investors. Companies delivering rising profitability tend to grow shareholder value over the long term.

Tencent was a very profitable company. The internet and technology company reported $80.6 billion in total revenues in 2023, up 10% from 2022. Its profit attributable to equity holders after stripping out one-time or non-cash items was $22.3 billion, a 36% increase from 2022. Even after including those items, Tencent posted $16.3 billion of profit attributable to equity holders in 2023 (although that was down 39% from 2022's level).

The company's strong profitability and cash flow allowed it to return significantly more money to shareholders. Tencent proposed a 42% increase in its annual dividend for 2023. It also planned to double the size of its share repurchases to around 100 billion Hong Kong dollars in 2024 ($12.8 billion at the exchange rate in mid-2024). The company was able to significantly increase its cash returns while continuing to invest heavily in its business.

Dividends

Does Tencent pay a dividend?

Tencent pays dividends to its investors. The Chinese company makes annual dividend payments to shareholders in Hong Kong dollars. In March 2024, the company proposed to increase its annual dividend based on its 2023 results by 42% to HKD3.40 per share ($0.43 per share).

In mid-2024, Tencent's dividend yield was less than 1% (given its share price and the exchange rates at the time), less than the S&P 500's roughly 1.4% dividend yield. Given Tencent's lower yield, annual payment schedule, and the risk of foreign exchange rate fluctuations, it's likely not a very appealing option for most dividend-focused investors.

ETFs

ETFs with exposure to Tencent

Not everyone wants to be an active stock picker, especially when it comes to investing internationally. Thanks to exchange-traded funds (ETFs), you don't have to actively manage a portfolio of stocks. You can passively invest in an ETF that holds stocks based around a common theme or broad market index, such as Chinese stocks.

Investors seeking to use ETFs to gain some passive exposure to Tencent and other Chinese stocks could consider the following options:

• iShares MSCI China ETF (MCHI -1.79%): This ETF provides investors with exposure to large and mid-sized companies in China. It had 660 stocks in mid-2024. Tencent was its top holding with a 15.3% weighting. The fund had a 0.59% ETF expense ratio.
• KraneShares CSI China Internet ETF (KWEB -2.05%): The fund focuses on China-based internet companies. It had 35 holdings in mid-2024. Tencent was its top holding at 10.4% of its net assets. The fund had a 0.69% expense ratio.
• iShares China Large-Cap ETF (FXI -1.92%): This ETF provides exposure to the 50 largest Chinese stocks. Tencent was its largest holding in mid-2024 with a 10.4% weighting. The ETF had a 0.74% expense ratio.

Related investing topics

Stock splits

Will Tencent stock split?

Tencent didn't have an upcoming stock split as of mid-2024. The company has split its stock once since its public listing. It completed a 1-for-5 stock split in 2014. At the time, Tencent President Martin Lau commented on the reasoning behind the split, stating, "We hope to lower the investment threshold for investors."

While it has been a decade since its last split, Tencent shares still traded at a relatively low investment threshold for most investors, with its share price around $50 in mid-2024, so it doesn't seem like Tencent will split its stock again anytime soon.

The bottom line on Tencent

Tencent is a leading Chinese technology company. It developed the popular WeChat app and several other leading digital platforms. They've enabled it to grow into an immensely profitable company.

However, investing in a Chinese company like Tencent is riskier than investing in a U.S.-listed stock. Investors need to carefully consider the added risks before adding Tencent to their portfolio.

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