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Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. Historically, United Internet AG (FRA:UTDI) has paid a dividend to shareholders. It currently yields 2.1%. Let’s dig deeper into whether United Internet should have a place in your portfolio.

Check out our latest analysis for United Internet

5 checks you should use to assess a dividend stock

Whenever I am looking at a potential dividend stock investment, I always check these five metrics:

• Does it pay an annual yield higher than 75% of dividend payers?

• Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?

• Has dividend per share amount increased over the past?

• Can it afford to pay the current rate of dividends from its earnings?

• Will the company be able to keep paying dividend based on the future earnings growth?

Does United Internet pass our checks?

The current trailing twelve-month payout ratio for the stock is 27.3%, which means that the dividend is covered by earnings. Going forward, analysts expect UTDI’s payout to increase to 37.5% of its earnings, which leads to a dividend yield of around 2.5%. However, EPS is forecasted to fall to €2.43 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.

If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider the cash flow of the business. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.

If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. Although UTDI’s per share payments have increased in the past 10 years, it has not been a completely smooth ride. Investors have seen reductions in the dividend per share in the past, although, it has picked up again.

In terms of its peers, United Internet generates a yield of 2.1%, which is high for Internet stocks but still below the market’s top dividend payers.

Next Steps:

Keeping in mind the dividend characteristics above, United Internet is definitely worth considering for investors looking to build a dedicated income portfolio. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. There are three relevant aspects you should look at: