A sizeable part of portfolio returns can be produced by dividend stocks due to their contribution to compounding returns in the long run. Historically, Rapala VMC Corporation (HEL:RAP1V) has been paying a dividend to shareholders. Today it yields 1.2%. Let’s dig deeper into whether Rapala VMC should have a place in your portfolio.
5 questions to ask before buying a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
- Is its annual yield among the top 25% of dividend-paying companies?
- Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
- Has the amount of dividend per share grown over the past?
- Is its earnings sufficient to payout dividend at the current rate?
- Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
How does Rapala VMC fare?
The current trailing twelve-month payout ratio for the stock is 33%, which means that the dividend is covered by earnings. Going forward, analysts expect RAP1V’s payout to increase to 54% of its earnings. Assuming a constant share price, this equates to a dividend yield of 5.4%. In addition to this, EPS should increase to €0.27. The higher payout forecasted, along with higher earnings, should lead to greater dividend income for investors moving forward.
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 dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. Not only have dividend payouts from Rapala VMC fallen over the past 10 years, it has also been highly volatile during this time, with drops of over 25% in some years. This means that dividend hunters should probably steer clear of the stock, at least for now until the track record improves.
In terms of its peers, Rapala VMC produces a yield of 1.2%, which is on the low-side for Leisure stocks.
Now you know to keep in mind the reason why investors should be careful investing in Rapala VMC for the dividend. On the other hand, if you are not strictly just a dividend investor, the stock could still be offering 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. There are three important factors you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for RAP1V’s future growth? Take a look at our free research report of analyst consensus for RAP1V’s outlook.
- Valuation: What is RAP1V 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 RAP1V 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 firstname.lastname@example.org.