Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. Historically, New Hope Corporation Limited (ASX:NHC) has paid dividends to shareholders, and these days it yields 4.5%. Should it have a place in your portfolio? Let’s take a look at New Hope in more detail.
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5 questions I ask before picking a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
- Does it pay an annual yield higher than 75% of dividend payers?
- Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
- Has dividend per share risen in the past couple of years?
- Can it afford to pay the current rate of dividends from its earnings?
- Will it have the ability to keep paying its dividends going forward?
Does New Hope pass our checks?
The current trailing twelve-month payout ratio for the stock is 78%, meaning the dividend is sufficiently covered by earnings. However, going forward, analysts expect NHC’s payout to fall to 42% of its earnings. Assuming a constant share price, this equates to a dividend yield of around 4.8%. However, EPS should increase to A$0.48, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
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 dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. Whilst its per-share payments have increased during the past 10 years, there has been some hiccups. Shareholders would have seen a few years of reduced payments in this time.
Relative to peers, New Hope produces a yield of 4.5%, which is high for Oil and Gas stocks but still below the market’s top dividend payers.
With these dividend metrics in mind, I definitely rank New Hope as a strong income stock, and is worth further research for anyone who considers dividends an important part of their portfolio strategy. 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 important factors you should look at:
- Future Outlook: What are well-informed industry analysts predicting for NHC’s future growth? Take a look at our free research report of analyst consensus for NHC’s outlook.
- Valuation: What is NHC 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 NHC is currently mispriced by the market.
- Other 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.