Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. ATA Inc (NASDAQ:ATAI) has returned to shareholders over the past 6 years, an average dividend yield of 4.00% annually. Does ATA tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis. See our latest analysis for ATA
5 questions I ask before picking a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- 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 dividend per share risen in the past couple of years?
- Does earnings amply cover its dividend payments?
- Will it be able to continue to payout at the current rate in the future?
How does ATA fare?The company currently pays out more than double of its earnings as a dividend, according to its trailing trailing twelve-month data, which suggests that the dividend is not well-covered by earnings by any means. 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 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. The reality is that it is too early to consider ATA as a dividend investment. It has only been consistently paying dividends for 6 years, however, standard practice for reliable payers is to look for a 10-year minimum track record. Relative to peers, ATA has a yield of 7.74%, which is high for Consumer Services stocks.
Now you know to keep in mind the reason why investors should be careful investing in ATA for the dividend. 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 fundamental aspects you should further examine:
- Valuation: What is ATAI 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 ATAI is currently mispriced by the market.
- Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on ATA’s board and the CEO’s back ground.
- Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.