Have you been keeping an eye on Biffa plc’s (LON:BIFF) upcoming dividend of UK£0.023 per share payable on the 04 January 2019? Then you only have 4 days left before the stock starts trading ex-dividend on the 06 December 2018. What does this mean for current shareholders and potential investors? Below, I will explain how holding Biffa can impact your portfolio income stream, by analysing the stock’s most recent financial data and dividend attributes.
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 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?
- Can it afford to pay the current rate of dividends from its earnings?
- Will the company be able to keep paying dividend based on the future earnings growth?
Does Biffa pass our checks?
The current trailing twelve-month payout ratio for the stock is 65%, which means that the dividend is covered by earnings. However, going forward, analysts expect BIFF’s payout to fall to 35% of its earnings, which leads to a dividend yield of 3.5%. However, EPS should increase to £0.15, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.
If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. The reality is that it is too early to consider Biffa as a dividend investment. Last year was the company’s first dividend payment, so it is certainly early days. The standard practice for reliable payers is to look for 10 or so years of track record.
Relative to peers, Biffa generates a yield of 3.4%, which is high for Commercial Services stocks but still below the market’s top dividend payers.
If Biffa is in your portfolio for cash-generating reasons, there may be better alternatives out there. 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, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. I’ve put together three pertinent aspects you should look at:
- Future Outlook: What are well-informed industry analysts predicting for BIFF’s future growth? Take a look at our free research report of analyst consensus for BIFF’s outlook.
- Valuation: What is BIFF 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 BIFF 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.