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, Linedata Services SA (EPA:LIN) has been paying a dividend to shareholders. Today it yields 4.4%. Does Linedata Services tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
5 checks you should use to assess a dividend stock
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
- Is it the top 25% annual dividend yield payer?
- Has it paid dividend every year without dramatically reducing payout in the past?
- 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 does Linedata Services fare?
The current trailing twelve-month payout ratio for the stock is 42%, which means that the dividend is covered by earnings. Going forward, analysts expect LIN’s payout to increase to 50% of its earnings, which leads to a dividend yield of 4.6%. However, EPS is forecasted to fall to €2.68 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.
If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. Although LIN’s per share payments have increased in the past 10 years, it has not been a completely smooth ride. Shareholders would have seen a few years of reduced payments in this time.
Compared to its peers, Linedata Services produces a yield of 4.4%, which is high for Software stocks but still below the market’s top dividend payers.
Considering the dividend attributes we analyzed above, Linedata Services is definitely worth keeping an eye on for someone looking to build a dedicated income portfolio. 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 key factors you should further research:
- Future Outlook: What are well-informed industry analysts predicting for LIN’s future growth? Take a look at our free research report of analyst consensus for LIN’s outlook.
- Valuation: What is LIN 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 LIN 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 firstname.lastname@example.org.