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Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. Domain Holdings Australia Limited (ASX:DHG) has begun paying dividends recently. It now yields 1.5%. Let’s dig deeper into whether Domain Holdings Australia should have a place in your portfolio.
Here’s how I find good dividend stocks
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 the amount of dividend per share grown over the past?
- Is its earnings sufficient to payout dividend at the current rate?
- Will the company be able to keep paying dividend based on the future earnings growth?
Does Domain Holdings Australia pass our checks?
The current payout ratio for DHG is negative, which is not great.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. 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. Unfortunately, it is really too early to view Domain Holdings Australia as a dividend investment. Last year was the company’s first dividend payment, so it is certainly early days. The standard practice for reliable payers is to look for 10 or so years of track record.
Compared to its peers, Domain Holdings Australia produces a yield of 1.5%, which is high for Interactive Media and Services stocks but still below the low risk savings rate.
Now you know to keep in mind the reason why investors should be careful investing in Domain Holdings Australia for the dividend. On the other hand, if you are not strictly just a dividend investor, the stock could still be offering some interesting investment opportunities. 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. Below, I’ve compiled three relevant factors you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for DHG’s future growth? Take a look at our free research report of analyst consensus for DHG’s outlook.
- Valuation: What is DHG 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 DHG 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 email@example.com. 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.