Smiths Group plc (LON:SMIN) has pleased shareholders over the past 10 years, by paying out dividends. The stock currently pays out a dividend yield of 3.1%, and has a market cap of UK£5.6b. Let’s dig deeper into whether Smiths Group should have a place in your portfolio.
Here’s how I find good dividend stocks
If you are a dividend investor, you should always assess these five key metrics:
- Is it the top 25% annual dividend yield payer?
- Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
- Has it increased its dividend per share amount over the past?
- Does earnings amply cover its dividend payments?
- Will it be able to continue to payout at the current rate in the future?
How well does Smiths Group fit our criteria?
The current trailing twelve-month payout ratio for the stock is 64%, meaning the dividend is sufficiently covered by earnings. However, going forward, analysts expect SMIN’s payout to fall to 45% of its earnings. Assuming a constant share price, this equates to a dividend yield of around 3.4%. However, EPS should increase to £0.92, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
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 is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. SMIN has increased its DPS from £0.34 to £0.45 in the past 10 years. It has also been paying out dividend consistently during this time, as you’d expect for a company increasing its dividend levels. These are all positive signs of a great, reliable dividend stock.
Relative to peers, Smiths Group generates a yield of 3.1%, which is high for Industrials stocks but still below the market’s top dividend payers.
Taking into account the dividend metrics, Smiths Group ticks most of the boxes as a strong dividend investment, putting it in my list of top dividend payers. 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 further examine:
- Future Outlook: What are well-informed industry analysts predicting for SMIN’s future growth? Take a look at our free research report of analyst consensus for SMIN’s outlook.
- Valuation: What is SMIN 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 SMIN 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.