Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. B3 Consulting Group AB (publ) (STO:B3) has recently paid dividends to shareholders, and currently yields 3.2%. Does B3 Consulting Group tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
5 questions I ask before picking a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
- Does it pay an annual yield higher than 75% of dividend payers?
- Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
- Has dividend per share risen in the past couple of years?
- 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 does B3 Consulting Group fare?
B3 Consulting Group has a trailing twelve-month payout ratio of 71%, which means that the dividend is covered by earnings. In the near future, analysts are predicting lower payout ratio of 59% which, assuming the share price stays the same, leads to a dividend yield of around 4.3%. However, EPS should increase to SEK4.58, 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. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. Unfortunately, it is really too early to view B3 Consulting Group as a dividend investment. It has only been consistently paying dividends for 2 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
Relative to peers, B3 Consulting Group produces a yield of 3.2%, which is high for IT stocks but still below the market’s top dividend payers.
Whilst there are few things you may like about B3 Consulting Group from a dividend stock perspective, the truth is that overall it probably is not the best choice for a dividend investor. 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. There are three important factors you should look at:
- Future Outlook: What are well-informed industry analysts predicting for B3’s future growth? Take a look at our free research report of analyst consensus for B3’s outlook.
- Valuation: What is B3 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 B3 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.