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Novartis AG (VTX:NOVN) has pleased shareholders over the past 10 years, by paying out dividends. The company currently pays out a dividend yield of 3.3% to shareholders, making it a relatively attractive dividend stock. Let’s dig deeper into whether Novartis should have a place in your portfolio.
5 checks you should use to assess a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
- Is it the top 25% annual dividend yield payer?
- Does it consistently pay out dividends without missing a payment of significantly cutting payout?
- Has dividend per share risen in the past couple of years?
- Can it afford to pay the current rate of dividends from its earnings?
- Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
How well does Novartis fit our criteria?
Novartis has a trailing twelve-month payout ratio of 53%, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting a payout ratio of 49% which, assuming the share price stays the same, leads to a dividend yield of around 3.5%. In addition to this, EPS is forecasted to fall to $3.88 in the upcoming year.
If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider the cash flow of the business. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.
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 NOVN it has increased its DPS from $1.68 to $2.89 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. These are all positive signs of a great, reliable dividend stock.
Relative to peers, Novartis has a yield of 3.3%, which is high for Pharmaceuticals stocks but still below the market’s top dividend payers.
With these dividend metrics in mind, I definitely rank Novartis 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, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. There are three important aspects you should look at:
- Future Outlook: What are well-informed industry analysts predicting for NOVN’s future growth? Take a look at our free research report of analyst consensus for NOVN’s outlook.
- Valuation: What is NOVN 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 NOVN 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 email@example.com.