A sizeable part of portfolio returns can be produced by dividend stocks due to their contribution to compounding returns in the long run. Historically, Tennant Company (NYSE:TNC) has paid dividends to shareholders, and these days it yields 1.6%. Let’s dig deeper into whether Tennant should have a place in your portfolio.
5 checks you should do on a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Is their annual yield among the top 25% of dividend payers?
- Has it paid dividend every year without dramatically reducing payout in the past?
- Has dividend per share risen in the past couple of years?
- Does earnings amply cover its dividend payments?
- Will the company be able to keep paying dividend based on the future earnings growth?
How well does Tennant fit our criteria?
Tennant has a trailing twelve-month payout ratio of 67%, which means that the dividend is covered by earnings. Furthermore, analysts have not forecasted a dividends per share for the future, which makes it hard to determine the yield shareholders should expect, and whether the current payout is sustainable, moving forward.
If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider the cash flow of the business. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. In the case of TNC it has increased its DPS from $0.52 to $0.88 in the past 10 years. It has also been paying out dividend consistently during this time, as you’d expect for a company increasing its dividend levels. This is an impressive feat, which makes TNC a true dividend rockstar.
Compared to its peers, Tennant generates a yield of 1.6%, which is on the low-side for Machinery stocks.
Taking into account the dividend metrics, Tennant ticks most of the boxes as a strong dividend investment, putting it in my list of top dividend payers. 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 fundamental aspects you should look at:
- Future Outlook: What are well-informed industry analysts predicting for TNC’s future growth? Take a look at our free research report of analyst consensus for TNC’s outlook.
- Valuation: What is TNC 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 TNC 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 email@example.com.