How I analyze a Dividend Stock
When researching a dividend stock, I always follow these screening criteria:
- Annual yield among the top 25% of dividend payers;
- Not missed a payment in the past 10 years, nor significantly reduced per share payout
- Dividend per share amount increased over at least 10 years
- Able to pay the current rate with their earnings
- Do I believe they can afford to keep paying based on future earnings growth?
It’s probably also worth saying that if the company has been a dividend payer for less then 10 years I don’t think the stock is time tested enough to be considered a ‘pure dividend stock’, instead I will think of the dividend as a part of a wider investment thesis. See our latest analysis for RBA
How does Ritchie Bros. Auctioneers fare?
The current payout ratio for the stock is 63%, which means that the dividend is covered by earnings. Looking forward 3 years the analysts expect the dividends per share be around $0.84 and EPS to increase to 1.47, this means they should be able to continue to afford to pay with expected future payout ratio of 57%.
Reliablity is an important factor for dividend stocks. In the case of RBA they have increased their DPS from $0.28 to $0.68 in the past 11 years. During this period they have not missed a payment, as expected for a company increasing their dividend.
The result everything is looking good for Ritchie Bros. Auctioneers with its attractive yield of 2.18%, which is high for a commercial services stock, but still below the market’s top dividend payers. .
Ritchie Bros. Auctioneers is on my radar as a dividend investment, it might not be perfect, but nothing ever is. Whilst the checks I mention above are basic you should be looking for stocks that meet them all AND of course you should understand and like the fundamental business.
No matter how great a company is, it is not worth an infite price. Is Ritchie Bros. Auctioneers overvalued or is it actually available for a good price? I recommend you check our latest FREE analysis to find out! If you are not interested in RBA anymore check out my list of “Dividend Rock Stars” to see stocks that meet all the checks above.