A sizeable part of portfolio returns can be produced by dividend stocks due to their contribution to compounding returns in the long run. Historically, Caleffi S.p.A. (BIT:CLF) has paid dividends to shareholders, and these days it yields 1.4%. Let’s dig deeper into whether Caleffi should have a place in your portfolio.
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5 questions to ask before buying 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 the amount of dividend per share grown over the past?
- Is its earnings sufficient to payout dividend at the current rate?
- Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
How well does Caleffi fit our criteria?
The current payout ratio for CLF is negative, which is not great.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.
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 facing CLF investors is that whilst it has continued to pay shareholders dividend, dividends are lower today, than they were a decade ago. Though this may not be a serious red flag, strong dividend stocks should always strive to increase its payout over time.
Relative to peers, Caleffi generates a yield of 1.4%, which is on the low-side for Luxury stocks.
After digging a little deeper into Caleffi’s yield, it’s easy to see why you should be cautious investing in the company just 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. I’ve put together three important factors you should further research:
- Future Outlook: What are well-informed industry analysts predicting for CLF’s future growth? Take a look at our free research report of analyst consensus for CLF’s outlook.
- Valuation: What is CLF 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 CLF 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 email@example.com.