Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. SpeedCast International Limited (ASX:SDA) has recently paid dividends to shareholders, and currently yields 1.9%. Let’s dig deeper into whether SpeedCast International should have a place in your portfolio.
5 checks you should do on a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
- Is it paying an annual yield above 75% of dividend payers?
- Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
- Has the amount of dividend per share grown over the past?
- Is its earnings sufficient to payout dividend at the current rate?
- Will it be able to continue to payout at the current rate in the future?
How does SpeedCast International fare?
SpeedCast International has a trailing twelve-month payout ratio of more than 200% of earnings, which suggests that the dividend is not well-covered by earnings by any means. However, going forward, analysts expect SDA’s payout to fall into a more sustainable range of 26% of its earnings. Assuming a constant share price, this equates to a dividend yield of around 3.0%. Moreover, EPS should increase to $0.10, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.
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. The reality is that it is too early to consider SpeedCast International as a dividend investment. It has only been consistently paying dividends for 4 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
Compared to its peers, SpeedCast International has a yield of 1.9%, which is on the low-side for Telecom stocks.
Now you know to keep in mind the reason why investors should be careful investing in SpeedCast International 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 look at:
- Future Outlook: What are well-informed industry analysts predicting for SDA’s future growth? Take a look at our free research report of analyst consensus for SDA’s outlook.
- Valuation: What is SDA 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 SDA 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.