In This Article:
A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. In the past 3 years Smartgroup Corporation Ltd (ASX:SIQ) has returned an average of 3.00% per year to investors in the form of dividend payouts. Should it have a place in your portfolio? Let’s take a look at Smartgroup in more detail. View our latest analysis for Smartgroup
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:
-
Is it paying an annual yield above 75% of dividend payers?
-
Has it paid dividend every year without dramatically reducing payout in the past?
-
Has dividend per share risen in the past couple of years?
-
Can it afford to pay the current rate of dividends from its earnings?
-
Will it have the ability to keep paying its dividends going forward?
Does Smartgroup pass our checks?
Smartgroup has a trailing twelve-month payout ratio of 101.34%, which means that the dividend is not well-covered by its earnings. In the near future, analysts are predicting a more sensible payout ratio of 65.76%, leading to a dividend yield of around 3.92%. In addition to this, EPS should increase to A$0.55, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment. 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. The reality is that it is too early to consider Smartgroup 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, Smartgroup has a yield of 3.27%, which is high for Commercial Services stocks but still below the market’s top dividend payers.
Next Steps:
Now you know to keep in mind the reason why investors should be careful investing in Smartgroup 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. Below, I’ve compiled three important factors you should further research:
-
Future Outlook: What are well-informed industry analysts predicting for SIQ’s future growth? Take a look at our free research report of analyst consensus for SIQ’s outlook.
-
Valuation: What is SIQ 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 SIQ is currently mispriced by the market.
-
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.