Attention dividend hunters! Allergan plc (NYSE:AGN) will be distributing its dividend of US$0.72 per share on the 14 December 2018, and will start trading ex-dividend in 4 days time on the 09 November 2018. Is this future income a persuasive enough catalyst for investors to think about Allergan as an investment today? Below, I’m going to look at the latest data and analyze the stock and its dividend property in further detail.
5 checks you should use to assess a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
- Does it pay an annual yield higher than 75% of dividend payers?
- Does it consistently pay out dividends without missing a payment of significantly cutting payout?
- Has dividend per share amount increased over the past?
- Is its earnings sufficient to payout dividend at the current rate?
- Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
Does Allergan pass our checks?
The current trailing twelve-month payout ratio for the stock is 37%, which means that the dividend is covered by earnings. In the near future, analysts are predicting lower payout ratio of 18%, leading to a dividend yield of around 1.9%. Moreover, EPS is also forecasted to fall to $-1.74 in the upcoming year. The lower EPS on top of a lower payout ratio will lead to a fall in dividend payment moving forward.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. Unfortunately, it is really too early to view Allergan 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.
Relative to peers, Allergan produces a yield of 1.8%, which is on the low-side for Pharmaceuticals stocks.
Taking all the above into account, Allergan 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, 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 key factors you should further research:
- Future Outlook: What are well-informed industry analysts predicting for AGN’s future growth? Take a look at our free research report of analyst consensus for AGN’s outlook.
- Valuation: What is AGN 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 AGN 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 past 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. For errors that warrant correction please contact the editor at firstname.lastname@example.org.