Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. Historically, GVC Holdings PLC (LON:GVC) has paid dividends to shareholders, and these days it yields 4.5%. Let’s dig deeper into whether GVC Holdings should have a place in your portfolio.
Check out our latest analysis for GVC Holdings
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5 questions I ask before picking a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
- Is it paying an annual yield above 75% of dividend payers?
- Does it consistently pay out dividends without missing a payment of significantly 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?
- Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
How well does GVC Holdings fit our criteria?
The company currently pays out 103% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is not well-covered by its earnings. However, going forward, analysts expect GVC’s payout to fall into a more sustainable range of 47% of its earnings. Assuming a constant share price, this equates to a dividend yield of around 5.0%. Furthermore, EPS should increase to £0.71, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider 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’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. Dividend payments from GVC Holdings have been volatile in the past 10 years, with some years experiencing significant drops of over 25%. This means that dividend hunters should probably steer clear of the stock, at least for now until the track record improves.
Relative to peers, GVC Holdings produces a yield of 4.5%, which is high for Hospitality stocks but still below the market’s top dividend payers.
Next Steps:
Now you know to keep in mind the reason why investors should be careful investing in GVC 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. There are three pertinent aspects you should look at:
- Future Outlook: What are well-informed industry analysts predicting for GVC’s future growth? Take a look at our free research report of analyst consensus for GVC’s outlook.
- Valuation: What is GVC 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 GVC 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 editorial-team@simplywallst.com.