Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. Historically, CIMIC Group Limited (ASX:CIM) has paid dividends to shareholders, and these days it yields 3.3%. Does CIMIC Group tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
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5 checks you should use to assess a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
- 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 it increased its dividend per share amount over the past?
- Is its earnings sufficient to payout dividend at the current rate?
- Will it have the ability to keep paying its dividends going forward?
How well does CIMIC Group fit our criteria?
CIMIC Group has a trailing twelve-month payout ratio of 61%, which means that the dividend is covered by earnings. In the near future, analysts are predicting a payout ratio of 63% which, assuming the share price stays the same, leads to a dividend yield of around 3.7%. Moreover, EPS should increase to A$2.53.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. Not only have dividend payouts from CIMIC Group fallen over the past 10 years, it has also been highly volatile during this time, with drops of over 25% in some years. These characteristics do not bode well for income investors seeking reliable stream of dividends.
Compared to its peers, CIMIC Group produces a yield of 3.3%, which is on the low-side for Construction stocks.
If CIMIC Group is in your portfolio for cash-generating reasons, there may be better alternatives out there. 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, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. I’ve put together three essential factors you should further research:
- Future Outlook: What are well-informed industry analysts predicting for CIM’s future growth? Take a look at our free research report of analyst consensus for CIM’s outlook.
- Valuation: What is CIM 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 CIM 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.