Dividend stocks aren't a way to get rich quick. What they will do, however, is deliver you great passive income. When planned correctly, dividend stocks can also be essential cornerstones of anyone planning for retirement. Owning dividend stocks with exposure to China, as well as Hong Kong, can be one of the most underappreciated ways to geographically diversify a portfolio.
Besides the dividend streams, these stocks can also offer capital upside if China or Hong Kong's economy grows faster than expected. In this article, I'll analyze four dividend stocks that yield over 4%, with three of them having significant exposure to China.
1. Power Assets Holdings
Power Assets Holdings (OTC:HGKGF) is a Hong Kong utility and energy company controlled by tycoon Li Ka-shing. It primarily invests in transmission, power generation and distribution assets. Due to its overseas investments, in 2018 over half of its profit came from the UK, 19% from Australia, and 14% from Hong Kong. As a company with utility assets, Power Assets' cash flows are more stable than many other firms due to the essential nature of electricity and natural gas.
As a company steered by Li Ka-shing, who many call Asia's Warren Buffett, the company could potentially generate accretive M&A deals in the future. Although earnings fell 8% year-on-year in 2018, Power Assets reported earnings per share (EPS) of HK$3.58 for 2018, comfortably covering its HK$2.80 dividend per share (DPS) for the year. Shares currently offer a dividend yield of almost 5%, and Power Assets' dividend has risen or stayed constant every year since 2013.
2. HSBC Holdings
HSBC Holdings (NYSE:HSBC) is a diversified international bank. Investors like the bank due to its access to high growth markets in Asia and its balance sheet strength. Over 80% of the bank's adjusted profit before tax comes from Asia, which is expected to grow faster than the US or Europe for the foreseeable future. In terms of its balance sheet, management expects the company's common equity tier 1 ratio to be over 14% for 2019 – which is solid.
That compares favorably to the big four US banks, of which only JPMorgan Chase has a tier 1 ratio of over 14%. HSBC could also benefit from the latest news that the Chinese government will allow foreign companies to own more of China's financial sector. Additionally, the development of the Pearl River Delta in Southern China offers HSBC the chance to use its robust Hong Kong base to grow substantially in the world's second-largest economy.
In terms of its dividend, HSBC pays out a dividend every three months (offering better cash flow for investors) and its annual dividend yields around 6% based on its current price. Management believes the dividend is sustainable as they have said they plan to maintain the annual dividend at "current levels for the foreseeable future".
3. Lenovo Group
Lenovo Group Ltd (OTC:LNVGY) is the world's largest PC maker with a global market share of around 23.4%. The company also has fast-growing Internet of Things (IoT) and data center divisions. For fiscal year 2019, its IoT division's revenue grew 9.9% year-on-year while its data center group grew 37% year-on-year to US$6.02 billion.
As China rolls out 5G, a wireless technology that seamlessly connects IoT devices, Lenovo's IoT division's growth could accelerate. As more Asian companies migrate to the cloud, Lenovo's server division will benefit. In terms of its dividend, Lenovo has either maintained or increased its dividend every year since 2014 and its current annual dividend payment of HK$0.278 yields around 4.6% based on its current price.
4. Sands China
Finally, we have Sands China Ltd (OTC:SCHYY), one of the biggest casinos and integrated resort operators in Macau and the China unit of Las Vegas Sands Corporation (NYSE:LVS). Gambling is illegal in China, making the gambling enclave of Macau – where gambling is legal – a popular spot to go to for both entertainment and betting. The territory has seen a resurgence of economic activity of late as gambling revenue hit a five-month high of 25.95 billion patacas (US$3.21 billion) in May.
Unlike the other three stocks mentioned, Sands China's dividend history has been less stable. Its dividend payout fell from HK$1.99 in 2014 to HK$1 in 2015 before rising to HK$1.99 per share for 2016. The company's dividend has remained stable since and yields around 5.1% based on its current price.
Power Assets, HSBC Holdings, Lenovo Group, and Sands China are all dividend stocks that yield over 4%. Each has its own strengths and all have the potential to benefit if the Chinese and Hong Kong economies improve. What's most important though is that I believe all four are worth further investigation for dividend investors looking to diversify their holdings while generating a consistent stream of income.
A version of article originally appeared on our Fool Asia site. For more coverage like this head over to Fool.hk.en