A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. In the last few years Mortgage Advice Bureau (Holdings) PLC (LON:MAB1) has paid a dividend to shareholders. Today it yields 4.2%. Does Mortgage Advice Bureau (Holdings) 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 assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
- Is it paying an annual yield above 75% of dividend payers?
- Has it paid dividend every year without dramatically reducing payout in the past?
- 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 Mortgage Advice Bureau (Holdings) fare?
The current trailing twelve-month payout ratio for MAB1 is 90%, meaning the dividend is not sufficiently covered by its earnings. Going forward, analysts expect MAB1’s payout to remain around the same level at 90% of its earnings. Assuming a constant share price, this equates to a dividend yield of 5.4%. Furthermore, EPS should increase to £0.26.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
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. The reality is that it is too early to consider Mortgage Advice Bureau (Holdings) as a dividend investment. It has only been consistently paying dividends for 4 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
Compared to its peers, Mortgage Advice Bureau (Holdings) generates a yield of 4.2%, which is on the low-side for Mortgage stocks.
Now you know to keep in mind the reason why investors should be careful investing in Mortgage Advice Bureau (Holdings) for the dividend. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. I’ve put together three key factors you should further research:
- Future Outlook: What are well-informed industry analysts predicting for MAB1’s future growth? Take a look at our free research report of analyst consensus for MAB1’s outlook.
- Valuation: What is MAB1 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 MAB1 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.