Attention dividend hunters! PSC Insurance Group Limited (ASX:PSI) will be distributing its dividend of AU$0.031 per share on the 10 April 2019, and will start trading ex-dividend in 4 days time on the 12 March 2019. Investors looking for higher income-generating stocks to add to their portfolio should keep reading, as I examine PSC Insurance Group’s latest financial data to analyse its dividend characteristics.
See our latest analysis for PSC Insurance 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 their annual yield among the top 25% of dividend payers?
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Has it paid dividend every year without dramatically reducing payout in the past?
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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 it have the ability to keep paying its dividends going forward?
How well does PSC Insurance Group fit our criteria?
The company currently pays out 124% of its earnings as a dividend, according to its trailing twelve-month data, meaning the dividend is not sufficiently covered by its earnings. However, going forward, analysts expect PSI’s payout to fall into a more sustainable range of 69% of its earnings. Assuming a constant share price, this equates to a dividend yield of 3.1%.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.
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. Unfortunately, it is really too early to view PSC Insurance Group as a dividend investment. It has only been consistently paying dividends for 3 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
In terms of its peers, PSC Insurance Group produces a yield of 2.8%, which is on the low-side for Insurance stocks.
Next Steps:
After digging a little deeper into PSC Insurance Group’s yield, it’s easy to see why you should be cautious investing in the company just for the dividend. 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 essential factors you should further examine: