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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, Delegat Group Limited (NZSE:DGL) has paid dividends to shareholders, and these days it yields 1.6%. Does Delegat Group tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
See our latest analysis for Delegat Group
5 questions to ask before buying a dividend stock
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
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Is it the top 25% annual dividend yield payer?
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Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
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Has dividend per share risen in the past couple of years?
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Does earnings amply cover its dividend payments?
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Will the company be able to keep paying dividend based on the future earnings growth?
How does Delegat Group fare?
Delegat Group has a trailing twelve-month payout ratio of 32%, which means that the dividend is covered by earnings. Going forward, analysts expect DGL’s payout to remain around the same level at 33% of its earnings. Assuming a constant share price, this equates to a dividend yield of 2.0%. In addition to this, EPS should increase to NZ$0.50.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. Dividend payments from Delegat Group have been volatile in the past 10 years, with some years experiencing significant drops of over 25%. This means that dividend hunters should probably steer clear of the stock, at least for now until the track record improves.
Relative to peers, Delegat Group generates a yield of 1.6%, which is on the low-side for Beverage stocks.
Next Steps:
Now you know to keep in mind the reason why investors should be careful investing in Delegat Group for the dividend. On the other hand, if you are not strictly just a dividend investor, the stock could still be offering some interesting investment opportunities. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. There are three fundamental factors you should further examine: