Prudential plc (LON:PRU) has pleased shareholders over the past 10 years, by paying out dividends. The stock currently pays out a dividend yield of 3.3%, and has a market cap of UK£36b. Should it have a place in your portfolio? Let’s take a look at Prudential in more detail.
See our latest analysis for Prudential
5 checks you should do on a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Does it pay an annual yield higher than 75% of dividend payers?
- Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
- Has the amount of dividend per share grown over the past?
- Is its earnings sufficient to payout dividend at the current rate?
- Will the company be able to keep paying dividend based on the future earnings growth?
How does Prudential fare?
Prudential has a trailing twelve-month payout ratio of 55%, which means that the dividend is covered by earnings. However, going forward, analysts expect PRU’s payout to fall to 33% of its earnings. Assuming a constant share price, this equates to a dividend yield of 4.0%. However, EPS should increase to £1.47, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. In the case of PRU it has increased its DPS from £0.18 to £0.47 in the past 10 years. It has also been paying out dividend consistently during this time, as you’d expect for a company increasing its dividend levels. These are all positive signs of a great, reliable dividend stock.
Compared to its peers, Prudential has a yield of 3.3%, which is on the low-side for Insurance stocks.
Next Steps:
Taking into account the dividend metrics, Prudential ticks most of the boxes as a strong dividend investment, putting it in my list of top dividend payers. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. Below, I’ve compiled three essential aspects you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for PRU’s future growth? Take a look at our free research report of analyst consensus for PRU’s outlook.
- Valuation: What is PRU 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 PRU 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 editorial-team@simplywallst.com.