Should You Buy Supply Network Limited (ASX:SNL) For Its Dividend?

A sizeable part of portfolio returns can be produced by dividend stocks due to their contribution to compounding returns in the long run. Supply Network Limited (ASX:SNL) has returned to shareholders over the past 10 years, an average dividend yield of 7.00% annually. Does Supply Network tick all the boxes of a great dividend stock? Below, I'll take you through my analysis. Check out our latest analysis for Supply Network

How I analyze a dividend stock

Whenever I am looking at a potential dividend stock investment, I always check these five metrics:

• Is its annual yield among the top 25% of dividend-paying companies?
• Does it consistently pay out dividends without missing a payment of significantly cutting payout?
• Has dividend per share risen in the past couple of years?
• Is is able to pay the current rate of dividends from its earnings?
• Based on future earnings growth, will it be able to continue to payout dividend at the current rate?

How well does Supply Network fit our criteria?

The current trailing twelve-month payout ratio for the stock is 59.03%, meaning the dividend is sufficiently covered by earnings. Furthermore, analysts have not forecasted a dividends per share for the future, which makes it hard to determine the yield shareholders should expect, and whether the current payout is sustainable, moving forward. If there's one type of stock you want to be reliable, it's dividend stocks and their stable income-generating ability. 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. In terms of its peers, Supply Network produces a yield of 2.59%, which is on the low-side for Retail Distributors stocks.

Next Steps:

Whilst there are few things you may like about Supply Network from a dividend stock perspective, the truth is that overall it probably is not the best choice for a dividend investor. 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 look at:

1. Valuation: What is SNL 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 SNL is currently mispriced by the market.
2. Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Supply Network’s board and the CEO’s back ground.
3. Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.