A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. Recently, ADT Inc (NYSE:ADT) has returned an average of 2.00% per year to shareholders in terms of dividend yield. Does ADT 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
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 it consistently paid a stable dividend without missing a payment or drastically cutting payout?
- Has it increased its dividend per share amount over the past?
- Can it afford to pay the current rate of dividends from its earnings?
- Will it have the ability to keep paying its dividends going forward?
How does ADT fare?
The current trailing twelve-month payout ratio for the stock is 7.12%, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting a higher payout ratio of 14.25%, leading to a dividend yield of around 1.71%. However, EPS is forecasted to fall to $-0.45 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.
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 ADT as a dividend investment. Last year was the company’s first dividend payment, so it is certainly early days. The standard practice for reliable payers is to look for 10 or so years of track record.
Relative to peers, ADT generates a yield of 1.53%, which is on the low-side for Commercial Services stocks.
If you are building an income portfolio, then ADT 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. I’ve put together three essential aspects you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for ADT’s future growth? Take a look at our free research report of analyst consensus for ADT’s outlook.
- Valuation: What is ADT 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 ADT 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.
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.