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Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. Over the past 2 years, Michael Hill International Limited (ASX:MHJ) has returned an average of 4.00% per year to shareholders in terms of dividend yield. Does Michael Hill International tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis. View our latest analysis for Michael Hill International
5 checks you should do on 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 their annual yield among the top 25% 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 dividend per share risen in the past couple of years?
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Is it able to pay the current rate of dividends from its earnings?
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Will it be able to continue to payout at the current rate in the future?
How does Michael Hill International fare?
The current trailing twelve-month payout ratio for MHJ is 124.39%, which means that the dividend is not well-covered by its earnings. However, going forward, analysts expect MHJ’s payout to fall into a more sustainable range of 60.74% of its earnings, which leads to a dividend yield of around 6.95%. Moreover, EPS should increase to A$0.09, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment. If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. Unfortunately, it is really too early to view Michael Hill International as a dividend investment. It has only been consistently paying dividends for 2 years, however, standard practice for reliable payers is to look for a 10-year minimum track record. Compared to its peers, Michael Hill International generates a yield of 5.71%, which is high for Specialty Retail stocks.
Next Steps:
Taking all the above into account, Michael Hill International is a complicated pick for dividend investors given that there are a couple of positive things about it as well as negative. 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 relevant factors you should look at:
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Future Outlook: What are well-informed industry analysts predicting for MHJ’s future growth? Take a look at our free research report of analyst consensus for MHJ’s outlook.
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Valuation: What is MHJ 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 MHJ is currently mispriced by the market.
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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 pass 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.