Should You Buy Webjet Limited (ASX:WEB) For Its Dividend?

A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. Webjet Limited (ASX:WEB) has returned to shareholders over the past 10 years, an average dividend yield of 3.00% annually. Let's dig deeper into whether Webjet should have a place in your portfolio. Check out our latest analysis for Webjet

Here's how I find good dividend stocks

When researching a dividend stock, I always follow the following screening criteria:

• 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 amount increased over the past?
• Can it afford to pay the current rate of dividends from its earnings?
• Will the company be able to keep paying dividend based on the future earnings growth?

How does Webjet fare?

The current payout ratio for the stock is 32.53%, which means that the dividend is covered by earnings. In the near future, analysts are predicting a higher payout ratio of 56.57%, leading to a dividend yield of 4.05%. However, EPS is forecasted to fall to A$0.44 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income. 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. In the case of WEB it has increased its DPS from A$0.04 to A$0.18 in the past 10 years. During this period it has not missed a payment, as one would expect for a company increasing its dividend. These are all positive signs of a great, reliable dividend stock. Relative to peers, Webjet generates a yield of 1.78%, which is high for online retail stocks but still below the low risk savings rate.

Next Steps:

Taking into account the dividend metrics, Webjet ticks most of the boxes as a strong dividend investment, putting it in my list of top dividend payers. 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. Below, I've compiled three essential factors you should further examine:

1. Future Outlook: What are well-informed industry analysts predicting for WEB’s future growth? Take a look at our free research report of analyst consensus for WEB’s outlook.

2. Valuation: What is WEB 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 WEB is currently mispriced by the market.

3. Other 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.