Over the past 10 years Koninklijke Ahold Delhaize N.V. (AMS:AD) has been paying dividends to shareholders. The stock currently pays out a dividend yield of 2.8%, and has a market cap of €25b. Does Koninklijke Ahold Delhaize tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
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5 checks you should use to assess 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?
- Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
- Has dividend per share risen in the past couple of years?
- Is its earnings sufficient to payout dividend at the current rate?
- Will it have the ability to keep paying its dividends going forward?
Does Koninklijke Ahold Delhaize pass our checks?
The company currently pays out 37% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is covered by earnings. In the near future, analysts are predicting a higher payout ratio of 49% which, assuming the share price stays the same, leads to a dividend yield of around 3.6%. However, EPS is forecasted to fall to €1.6 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
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. AD has increased its DPS from €0.18 to €0.63 in the past 10 years. During this period it has not missed a payment, as one would expect for a company increasing its dividend. This is an impressive feat, which makes AD a true dividend rockstar.
Compared to its peers, Koninklijke Ahold Delhaize generates a yield of 2.8%, which is high for Consumer Retailing stocks but still below the market’s top dividend payers.
With these dividend metrics in mind, I definitely rank Koninklijke Ahold Delhaize 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, 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 essential aspects you should further research:
- Future Outlook: What are well-informed industry analysts predicting for AD’s future growth? Take a look at our free research report of analyst consensus for AD’s outlook.
- Valuation: What is AD 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 AD 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.