On the 06 June 2019, McColl’s Retail Group plc (LON:MCLS) will be paying shareholders an upcoming dividend amount of UK£0.006 per share. However, investors must have bought the company’s stock before 25 April 2019 in order to qualify for the payment. That means you have only 3 days left! Investors looking for higher income-generating stocks to add to their portfolio should keep reading, as I examine McColl’s Retail Group’s latest financial data to analyse its dividend characteristics.
How I analyze a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Is it paying an annual yield above 75% of dividend payers?
- Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
- Has it increased its dividend per share amount over the past?
- 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?
Does McColl’s Retail Group pass our checks?
McColl’s Retail Group has a trailing twelve-month payout ratio of 67%, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting lower payout ratio of 49% which, assuming the share price stays the same, leads to a dividend yield of around 5.9%.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. Unfortunately, it is really too early to view McColl’s Retail Group as a dividend investment. It has only been consistently paying dividends for 5 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
In terms of its peers, McColl’s Retail Group has a yield of 5.0%, which is high for Consumer Retailing stocks but still below the market’s top dividend payers.
If McColl’s Retail Group 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, 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 important factors you should look at:
- Future Outlook: What are well-informed industry analysts predicting for MCLS’s future growth? Take a look at our free research report of analyst consensus for MCLS’s outlook.
- Valuation: What is MCLS 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 MCLS 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.
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.