Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. Historically, Avery Dennison Corporation (NYSE:AVY) has paid dividends to shareholders, and these days it yields 2.2%. Let’s dig deeper into whether Avery Dennison should have a place in your portfolio.
5 questions I ask before picking a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
- Is it paying an annual yield above 75% 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?
- 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 Avery Dennison fare?
The current trailing twelve-month payout ratio for the stock is 55%, meaning the dividend is sufficiently covered by earnings. However, going forward, analysts expect AVY’s payout to fall to 30% of its earnings, which leads to a dividend yield of around 2.2%. However, EPS should increase to $6.15, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
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. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.
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. Whilst its per-share payments have increased during the past 10 years, there has been some hiccups. Investors have seen reductions in the dividend per share in the past, although, it has picked up again.
Relative to peers, Avery Dennison has a yield of 2.2%, which is on the low-side for Packaging stocks.
With this in mind, I definitely rank Avery Dennison as a strong dividend stock, and makes it worth further research for anyone who likes steady income generation from their 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. I’ve put together three essential factors you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for AVY’s future growth? Take a look at our free research report of analyst consensus for AVY’s outlook.
- Valuation: What is AVY 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 AVY 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.