A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. Arvida Group Limited (NZSE:ARV) has recently paid dividends to shareholders, and currently yields 3.6%. Does Arvida Group tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
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5 questions to ask before buying a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
- Is its annual yield among the top 25% of dividend-paying companies?
- 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?
- Does earnings amply cover its dividend payments?
- Will it be able to continue to payout at the current rate in the future?
How does Arvida Group fare?
The current trailing twelve-month payout ratio for the stock is 26%, which means that the dividend is covered by earnings. In the near future, analysts are predicting a higher payout ratio of 57% which, assuming the share price stays the same, leads to a dividend yield of 4.5%. However, EPS is forecasted to fall to NZ$0.097 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. 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. The reality is that it is too early to consider Arvida Group as a dividend investment. It has only been consistently paying dividends for 4 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
Compared to its peers, Arvida Group generates a yield of 3.6%, which is high for Healthcare stocks but still below the market’s top dividend payers.
If you are building an income portfolio, then Arvida Group is a complicated choice since it has some positive aspects as well as negative ones. 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. Below, I’ve compiled three pertinent aspects you should look at:
- Future Outlook: What are well-informed industry analysts predicting for ARV’s future growth? Take a look at our free research report of analyst consensus for ARV’s outlook.
- Historical Performance: What has ARV’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- 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.