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A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. Historically, Avery Dennison Corporation (NYSE:AVY) has been paying a dividend to shareholders. Today it yields 1.9%. Let’s dig deeper into whether Avery Dennison should have a place in your portfolio.
5 questions I ask before picking a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Does it pay an annual yield higher than 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?
- Is its earnings sufficient to payout dividend at the current rate?
- Will it have the ability to keep paying its dividends going forward?
How well does Avery Dennison fit our criteria?
The company currently pays out 38% of its earnings as a dividend, according to its trailing twelve-month data, meaning the dividend is sufficiently covered by earnings. However, going forward, analysts expect AVY’s payout to fall to 29% of its earnings. Assuming a constant share price, this equates to a dividend yield of 2.1%. However, EPS should increase to $6.61, 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. 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. Although AVY’s per share payments have increased in the past 10 years, it has not been a completely smooth ride. Investors have seen reductions in the dividend per share in the past, although, it has picked up again.
Compared to its peers, Avery Dennison generates a yield of 1.9%, which is on the low-side for Packaging stocks.
Considering the dividend attributes we analyzed above, Avery Dennison is definitely worth keeping an eye on for someone looking to build a dedicated income portfolio. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. Below, I’ve compiled three key aspects 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.
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 firstname.lastname@example.org. 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.