Silverlake Axis Ltd (SGX:5CP) has pleased shareholders over the past 10 years, by paying out dividends. The company currently pays out a dividend yield of 7.0% to shareholders, making it a relatively attractive dividend stock. Does Silverlake Axis tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
5 questions to ask before buying a dividend stock
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
- Is their annual yield among the top 25% 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?
- Does earnings amply cover its dividend payments?
- Will it be able to continue to payout at the current rate in the future?
How well does Silverlake Axis fit our criteria?
The current trailing twelve-month payout ratio for the stock is 70%, which means that the dividend is covered by earnings. Going forward, analysts expect 5CP’s payout to remain around the same level at 73% of its earnings, which leads to a dividend yield of around 5.5%. Furthermore, EPS should increase to MYR0.078.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. 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. Although 5CP’s per share payments have increased in the past 10 years, it has not been a completely smooth ride. Shareholders would have seen a few years of reduced payments in this time.
Relative to peers, Silverlake Axis produces a yield of 7.0%, which is high for Software stocks.
Keeping in mind the dividend characteristics above, Silverlake Axis is definitely worth considering for investors looking to build a dedicated income portfolio. 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 examine:
- Future Outlook: What are well-informed industry analysts predicting for 5CP’s future growth? Take a look at our free research report of analyst consensus for 5CP’s outlook.
- Valuation: What is 5CP 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 5CP 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.