A sizeable part of portfolio returns can be produced by dividend stocks due to their contribution to compounding returns in the long run. Southern Gold Limited (ASX:SAU) has returned an average dividend yield of 11.00% annually to shareholders. Let’s dig deeper into whether Southern Gold should have a place in your portfolio. See our latest analysis for Southern Gold
How I analyze a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
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Is it the top 25% annual dividend yield payer?
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Does it consistently pay out dividends without missing a payment of significantly cutting payout?
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Has dividend per share risen in the past couple of years?
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Is is able to pay the current rate of dividends from its earnings?
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Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
How well does Southern Gold fit our criteria?
The company currently pays out 54.43% of its earnings as a dividend, which means that the dividend is covered by earnings. Furthermore, analysts have not forecasted a dividends per share for the future, which makes it hard to determine the yield shareholders should expect, and whether the current payout is sustainable, moving forward. If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. The reality is that it is too early to consider Southern Gold as a dividend investment. Last year was the company’s first dividend payment, so it is certainly early days. The standard practice for reliable payers is to look for 10 or so years of track record. Relative to peers, Southern Gold produces a yield of 11.32%, which is high for metals and mining stocks.
Next Steps:
If Southern Gold is in your portfolio for cash-generating reasons, there may be better alternatives out there. 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, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. Below, I’ve compiled three essential aspects you should look at:
1. Valuation: What is SAU 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 SAU is currently mispriced by the market.
2. Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Southern Gold’s board and the CEO’s back ground.