How I analyze a Dividend Stock
When assessing a stock as a potential addition to my dividend Portfolio I look at 5 areas:
- Annual yield among the top 25% of dividend payers;
- Have they missed a payment in the past 10 years, or did they significantly reduce their per share payout?
- Have they increased their dividend per share amount over at least 10 years?
- Can they afford to pay the current rate with their earnings?
- Can afford to keep paying based on the future earnings growth
In the case where a company has been paying a dividend for less then 10 years It doesn’t yet pass my criteria of a ‘pure dividend stock’. Rather I would include the dividend as part of a wider investment thesis. View our latest analysis for Air New Zealand
How does Air New Zealand fare?
Air New Zealand has a payout ratio of 62%, meaning the dividend is sufficiently covered by earnings. In 3 years time the analysts are predicting dividends per share to be around $0.19 and EPS to decrease to $0.29. This means they should be able to continue the dividend payout with an estimated future payout ratio of 66%.
If there is one thing that you want to be reliable, it is dividend stocks. Although AIR’s per share payments have increased in the past 10 years, it has not been a completely smooth ride. Shareholders would have seen a few years of reduced payments in this time.
This means everything is looking good for Air New Zealand with its attractive yield of 7.24%, which is high for a transportation stock.
Considering this, AIR is definitely worth considering for someone looking to build a dedicated income Portfolio. 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 underlying business.
No matter how great a company is, it is not worth an infite price. Is Air New Zealand 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 AIR anymore check out my list of “Dividend Rock Stars” to see stocks that meet all the checks above.