A sizeable part of portfolio returns can be produced by dividend stocks due to their contribution to compounding returns in the long run. Historically, H Lundbeck A/S (CPH:LUN) has been paying a dividend to shareholders. Today it yields 2.1%. Let’s dig deeper into whether H. Lundbeck should have a place in your portfolio.
Check out our latest analysis for H. Lundbeck
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:
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Is it paying an annual yield above 75% of dividend payers?
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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 it increased its dividend per share amount over the past?
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Does earnings amply cover its dividend payments?
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Will it be able to continue to payout at the current rate in the future?
Does H. Lundbeck pass our checks?
H. Lundbeck has a trailing twelve-month payout ratio of 43.7%, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting a higher payout ratio of 62.5%, leading to a dividend yield of 3.4%. Moreover, EPS should increase to DKK18.67. The higher payout forecasted, along with higher earnings, should lead to greater dividend income for investors moving forward.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. Although LUN’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, H. Lundbeck produces a yield of 2.1%, which is on the low-side for Pharmaceuticals stocks.
Next Steps:
Keeping in mind the dividend characteristics above, H. Lundbeck 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 fundamental aspects you should further examine:
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Future Outlook: What are well-informed industry analysts predicting for LUN’s future growth? Take a look at our free research report of analyst consensus for LUN’s outlook.
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Valuation: What is LUN worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether LUN is currently mispriced by the market.
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Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.