Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. Historically, Seplat Petroleum Development Company Plc (LON:SEPL) has been paying a dividend to shareholders. Today it yields 6.8%. Should it have a place in your portfolio? Let’s take a look at Seplat Petroleum Development in more detail.
5 questions to ask before buying a dividend stock
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
- Does it pay an annual yield higher than 75% of dividend payers?
- Does it consistently pay out dividends without missing a payment of significantly cutting payout?
- Has dividend per share risen in the past couple of years?
- Is is able to pay the current rate of dividends from its earnings?
- Will it have the ability to keep paying its dividends going forward?
How well does Seplat Petroleum Development fit our criteria?
Seplat Petroleum Development has a trailing twelve-month payout ratio of 16%, which means that the dividend is covered by earnings. In the near future, analysts are predicting a higher payout ratio of 24%, leading to a dividend yield of 7.2%. However, EPS is forecasted to fall to $0.36 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
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 Seplat Petroleum Development 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.
Relative to peers, Seplat Petroleum Development has a yield of 6.8%, which is high for Oil and Gas stocks.
With these dividend metrics in mind, I definitely rank Seplat Petroleum Development as a strong income stock, and is worth further research for anyone who considers dividends an important part of their portfolio strategy. 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 further examine:
- Future Outlook: What are well-informed industry analysts predicting for SEPL’s future growth? Take a look at our free research report of analyst consensus for SEPL’s outlook.
- Valuation: What is SEPL 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 SEPL 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.
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.