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SouFun Is Fast Grower, But Big Yield Needs Asterisk

By: Investor's Business Daily
Posted: 2/15/2013 5:35:00 PM
Referenced Stocks: SFUN

Small capSouFun Holdings ( SFUN ) is a growth stock with a big dividend yield -- 7.1%.

In the stock market today , however, an outsized yield should prompt questions. SouFun only began paying dividends in 2011 and the timing of the payouts is rather erratic.

The first payout was in August 2011 -- $1 per American depositary receipt. In 2012, a $1-a-share dividend was paid in January and September. No dividend has yet been declared for 2013.

The irregular timing may be off-putting to retirees seeking income. Yet successful investors often focus on capital appreciation, taking what income is needed out of stock profits.

SouFun is an Internet portal in China that provides real estate listings, along with information on home furnishings and home improvement. Most of the company's revenue is derived from online advertising.

Although the stock is thinly traded (290,000 daily), the Composite Rating is a best-possible 99. The Composite Rating combines all five IBD ratings into a single number.

Earnings have been consistent. SouFun's three-year EPS Stability Factor is 8 and the five-year number is 21. The scale runs from 0 (calm) to 99 (erratic). Annual earnings growth has been exceptional. In the past five years through 2012, earnings grew 92%, 72%, 66%, 70% and 42%. The Street, though, expects only 10% growth this year.

The projected slowdown in earnings growth is a concern.

One ever-present risk is China's government officials and their efforts to control the economy. For example, after China's real estate boom in 2009-10, the government moved to stop the sector from "overheating" with a series of rulings.

China policies designed to control banks can affect the ease of obtaining loans to buy a house. That can depress advertising. Granted, this isn't different than Western nations, but it's still a risk.

SouFun's stock cleared a buy point at 19 from a first-stage pattern in early October. The breakout failed, triggering the 8% sell rule on Oct. 18. The stock found support at the 50-day line and bounced off it in November. A second trip and bounce off the 50-day line in late January set a new buy zone.