Over the past 10 years ABB Ltd (VTX:ABBN) has grown its dividend payouts from $0.42 to $0.77. With a market cap of CHF41b, ABB pays out 76% of its earnings, leading to a 4.0% yield. Let me elaborate on you why the stock stands out for income investors like myself.
See our latest analysis for ABB
What Is A Dividend Rock Star?
It is a stock that pays a stable and consistent dividend, having done so reliably for the past decade with the expectation of this continuing into the future. More specifically:
- It is paying an annual yield above 75% of dividend payers
- It consistently pays out dividend without missing a payment or significantly cutting payout
- Its dividend per share amount has increased over the past
- It is able to pay the current rate of dividends from its earnings
- It is able to continue to payout at the current rate in the future
High Yield And Dependable
ABB currently yields 4.0%, which is high for Electrical stocks. But the real reason ABB stands out is because it has a high chance of being able to continue to pay dividend at this level for years to come, something that is quite desirable if you are looking to create a portfolio that generates a steady stream of 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 ABBN it has increased its DPS from $0.42 to $0.77 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 ABBN a true dividend rockstar.
ABB has a trailing twelve-month payout ratio of 76%, meaning the dividend is sufficiently covered by earnings. However, going forward, analysts expect ABBN’s payout to fall to 51% of its earnings. Assuming a constant share price, this equates to a dividend yield of around 4.5%. However, EPS should increase to $1.3, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.
Next Steps:
ABB ticks all the boxes for what I look for in a dividend stock. If you are looking to build an income focused portfolio, this could be one to include. However, given 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. Below, I’ve compiled three important factors you should look at:
- Future Outlook: What are well-informed industry analysts predicting for ABBN’s future growth? Take a look at our free research report of analyst consensus for ABBN’s outlook.
- Valuation: What is ABBN 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 ABBN is currently mispriced by the market.
- Other Dividend Rockstars: Are there strong dividend payers with better fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.