A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. Historically, ICT Group N.V. (AMS:ICT) has paid dividends to shareholders, and these days it yields 2.7%. Does ICT Group tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
Check out our latest analysis for ICT Group
5 questions to ask before buying a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
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Is it the top 25% annual dividend yield payer?
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Has it paid dividend every year without dramatically reducing payout in the past?
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Has it increased its dividend per share amount over the past?
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Can it afford to pay the current rate of dividends from its earnings?
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Will it have the ability to keep paying its dividends going forward?
How does ICT Group fare?
The company currently pays out 35% of its earnings as a dividend, according to its trailing twelve-month data, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting a higher payout ratio of 42% which, assuming the share price stays the same, leads to a dividend yield of around 3.8%. However, EPS is forecasted to fall to €0.80 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. Dividend payments from ICT 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.
In terms of its peers, ICT Group has a yield of 2.7%, which is high for Software stocks but still below the market’s top dividend payers.
Next Steps:
If you are building an income portfolio, then ICT Group is a complicated choice since it has some positive aspects as well as negative ones. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. 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 factors you should further research: