Over the past 10 years ABB Ltd (VTX:ABBN) has been paying dividends to shareholders. The company currently pays out a dividend yield of 4.1% to shareholders, making it a relatively attractive dividend stock. Does ABB tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
View our latest analysis for ABB
5 questions to ask before buying a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Is it the top 25% annual dividend yield payer?
- Has it paid dividend every year without dramatically reducing payout in the past?
- Has it increased its dividend per share amount over the past?
- Can it afford to pay the current rate of dividends from its earnings?
- Will it be able to continue to payout at the current rate in the future?
How does ABB fare?
The current trailing twelve-month payout ratio for the stock is 76%, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting lower payout ratio of 55% which, assuming the share price stays the same, leads to a dividend yield of 4.6%. However, EPS should increase to $1.28, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. In the case of ABBN it has increased its DPS from $0.42 to $0.77 in the past 10 years. It has also been paying out dividend consistently during this time, as you’d expect for a company increasing its dividend levels. This is an impressive feat, which makes ABBN a true dividend rockstar.
Compared to its peers, ABB produces a yield of 4.1%, which is high for Electrical stocks.
Next Steps:
With these dividend metrics in mind, I definitely rank ABB as a strong income stock, and is worth further research for anyone who considers dividends an important part of their portfolio strategy. 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 relevant 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 better dividend payers with stronger 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.