Shares of Reliance Worldwide Corporation Limited (ASX:RWC) will begin trading ex-dividend in 4 days. To qualify for the dividend check of AU$0.04 per share, investors must have owned the shares prior to 07 March 2019, which is the last day the company’s management will finalize their list of shareholders to which they will send dividend payments. Investors looking for higher income-generating stocks to add to their portfolio should keep reading, as I take a deeper dive into Reliance Worldwide’s latest financial data to analyse its dividend attributes.
Here’s how I find good dividend stocks
If you are a dividend investor, you should always assess these five key metrics:
- Is its annual yield among the top 25% of dividend-paying companies?
- Has it paid dividend every year without dramatically reducing payout in the past?
- Has it increased its dividend per share amount over the past?
- Does earnings amply cover its dividend payments?
- Will it have the ability to keep paying its dividends going forward?
How well does Reliance Worldwide fit our criteria?
Reliance Worldwide has a trailing twelve-month payout ratio of 50%, which means that the dividend is covered by earnings. In the near future, analysts are predicting a payout ratio of 46% which, assuming the share price stays the same, leads to a dividend yield of 2.4%. Moreover, EPS should increase to A$0.22.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
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. Unfortunately, it is really too early to view Reliance Worldwide 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.
In terms of its peers, Reliance Worldwide generates a yield of 1.5%, which is on the low-side for Building stocks.
Now you know to keep in mind the reason why investors should be careful investing in Reliance Worldwide 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, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. There are three key factors you should further research:
- Future Outlook: What are well-informed industry analysts predicting for RWC’s future growth? Take a look at our free research report of analyst consensus for RWC’s outlook.
- Valuation: What is RWC 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 RWC 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.