Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. In the past, Biffa plc (LON:BIFF) has returned an average of 3.00% per year to investors in the form of dividend payouts. Let’s dig deeper into whether Biffa should have a place in your portfolio.
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 paying an annual yield above 75% of dividend payers?
- Has it paid dividend every year without dramatically reducing payout in the past?
- Has dividend per share amount increased over the past?
- Is is able 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?
How well does Biffa fit our criteria?
The current trailing twelve-month payout ratio for the stock is 53.86%, which means that the dividend is covered by earnings. However, going forward, analysts expect BIFF’s payout to fall to 35.24% of its earnings, which leads to a dividend yield of around 2.94%. However, EPS should increase to £0.15, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. 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 produces a yield of 3.66%, which is high for Commercial Services stocks but still below the market’s top dividend payers.
If you are building an income portfolio, then Biffa is a complicated choice since it has some positive aspects as well as negative ones. 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. There are three key aspects you should further research:
- 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.