Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. Historically, Klöckner & Co SE (ETR:KCO) has been paying a dividend to shareholders. Today it yields 4.4%. Does Klöckner & Co tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
5 questions to ask before buying a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Is their annual yield among the top 25% of dividend payers?
- Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
- Has the amount of dividend per share grown 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?
Does Klöckner & Co pass our checks?
The current trailing twelve-month payout ratio for the stock is 44%, which means that the dividend is covered by earnings. In the near future, analysts are predicting lower payout ratio of 37% which, assuming the share price stays the same, leads to a dividend yield of 3.4%. In addition to this, EPS is also forecasted to fall to €0.47 in the upcoming year. The lower EPS on top of a lower payout ratio will lead to a fall in dividend payment moving forward.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.
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. Unfortunately, it is really too early to view Klöckner & Co as a dividend investment. It has only been consistently paying dividends for 8 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
In terms of its peers, Klöckner & Co generates a yield of 4.4%, which is high for Trade Distributors stocks.
With this in mind, I definitely rank Klöckner & Co as a strong dividend stock, and makes it worth further research for anyone who likes steady income generation from their portfolio. 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. I’ve put together three pertinent aspects you should further research:
- Future Outlook: What are well-informed industry analysts predicting for KCO’s future growth? Take a look at our free research report of analyst consensus for KCO’s outlook.
- Valuation: What is KCO 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 KCO 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.
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.