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, Grifols SA (BME:GRF) has paid dividends to shareholders, and these days it yields 1.7%. Let’s dig deeper into whether Grifols should have a place in your portfolio.
5 checks you should do on a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
- Is their annual yield among the top 25% of dividend payers?
- Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
- Has dividend per share amount increased over the past?
- Does earnings amply cover its dividend payments?
- Will it have the ability to keep paying its dividends going forward?
Does Grifols pass our checks?
The current trailing twelve-month payout ratio for the stock is 39%, which means that the dividend is covered by earnings. Going forward, analysts expect GRF’s payout to remain around the same level at 36% of its earnings, which leads to a dividend yield of 1.8%. Moreover, EPS should increase to €1.04.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. Whilst its per-share payments have increased during the past 10 years, there has been some hiccups. Shareholders would have seen a few years of reduced payments in this time.
In terms of its peers, Grifols generates a yield of 1.7%, which is on the low-side for Biotechs stocks.
Taking all the above into account, Grifols is a complicated pick for dividend investors given that there are a couple of positive things about it as well as negative. However, if you are not strictly just a dividend investor, the stock could still offer some interesting investment opportunities. Given that 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. I’ve put together three important aspects you should look at:
- Future Outlook: What are well-informed industry analysts predicting for GRF’s future growth? Take a look at our free research report of analyst consensus for GRF’s outlook.
- Valuation: What is GRF 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 GRF is currently mispriced by the market.
- 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.