Attention dividend hunters! Fairfax Financial Holdings Limited (TSX:FFH) will be distributing its dividend of $10 per share on the 25 January 2018, and will start trading ex-dividend in 3 days time on the 17 January 2018. Should you diversify into Fairfax Financial Holdings and boost your portfolio income stream? Well, keep on reading because today, I’m going to look at the latest data and analyze the stock and its dividend property in further detail. See our latest analysis for Fairfax Financial Holdings
How I analyze a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Does it pay an annual yield higher than 75% of dividend payers?
- Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
- Has it increased its dividend per share amount over the past?
- Does earnings amply cover its dividend payments?
- Will the company be able to keep paying dividend based on the future earnings growth?
How well does Fairfax Financial Holdings fit our criteria?Fairfax Financial Holdings has a payout ratio of 192.93%, meaning the dividend is not sufficiently covered by its earnings. In the near future, analysts are predicting a more sensible payout ratio of 38.73%, leading to a dividend yield of around 2.01%. Moreover, EPS should increase to $53.21, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment. 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. FFH has increased its DPS from $5 to $10 in the past 10 years. During this period it has not missed a payment, as one would expect for a company increasing its dividend. This is an impressive feat, which makes FFH a true dividend rockstar. Relative to peers, Fairfax Financial Holdings generates a yield of 1.52%, which is on the low-side for insurance stocks.
What this means for you:
Are you a shareholder? If Fairfax Financial Holdings is in your portfolio for cash-generating reasons, there may be better alternatives out there. It may be worth exploring other income stocks as alternatives to Fairfax Financial Holdings or even look at high-growth stocks to supplement your steady income stocks. I encourage you to continue your research by taking a look at my interactive free list of dividend rockstars as well as high-growth stocks to potentially add to your holdings.
Are you a potential investor? Taking all the above into account, Fairfax Financial Holdings is a complicated pick for dividend investors given that there are a couple of positive things about it as well as negative. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. As always, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. Take a look at our latest free fundmental analysis to explore other aspects of Fairfax Financial Holdings.