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Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. Virtu Financial, Inc. (NASDAQ:VIRT) has recently paid dividends to shareholders, and currently yields 3.8%. Does Virtu Financial 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
If you are a dividend investor, you should always assess these five key metrics:
- Is it the top 25% annual dividend yield payer?
- 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?
- Is is able to pay the current rate of dividends from its earnings?
- Will the company be able to keep paying dividend based on the future earnings growth?
How does Virtu Financial fare?
Virtu Financial has a trailing twelve-month payout ratio of 33%, which means that the dividend is covered by earnings. In the near future, analysts are predicting a higher payout ratio of 43% which, assuming the share price stays the same, leads to a dividend yield of around 3.9%. However, EPS is forecasted to fall to $1.74 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. The reality is that it is too early to consider Virtu Financial as a dividend investment. It has only been consistently paying dividends for 4 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
In terms of its peers, Virtu Financial has a yield of 3.8%, which is high for Capital Markets stocks.
Considering the dividend attributes we analyzed above, Virtu Financial is definitely worth keeping an eye on for someone looking to build a dedicated income portfolio. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. There are three important factors you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for VIRT’s future growth? Take a look at our free research report of analyst consensus for VIRT’s outlook.
- Valuation: What is VIRT 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 VIRT 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.
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.