There is a lot to be liked about CF Industries Holdings Inc (NYSE:CF) as an income stock. It has paid dividends over the past 10 years. The company is currently worth US$10.5b, and now yields roughly 2.7%. Should it have a place in your portfolio? Let’s take a look at CF Industries Holdings in more detail.
Check out our latest analysis for CF Industries Holdings
5 questions to ask before buying a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
- Is it the top 25% annual dividend yield payer?
- Has it paid dividend every year without dramatically reducing payout in the past?
- Has the amount of dividend per share grown over the past?
- Is its earnings sufficient to payout dividend at the current rate?
- Will it be able to continue to payout at the current rate in the future?
How well does CF Industries Holdings fit our criteria?
The company currently pays out 48% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is covered by earnings. In the near future, analysts are predicting lower payout ratio of 42%, leading to a dividend yield of 2.7%. Moreover, EPS is also forecasted to fall to $1.85 in the upcoming year. The lower EPS on top of a lower payout ratio will lead to a fall in dividend payment moving forward.
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.
Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. CF has increased its DPS from $0.080 to $1.2 in the past 10 years. During this period it has not missed a payment, as one would expect for a company increasing its dividend. This is an impressive feat, which makes CF a true dividend rockstar.
In terms of its peers, CF Industries Holdings generates a yield of 2.7%, which is high for Chemicals stocks but still below the market’s top dividend payers.
Next Steps:
With this in mind, I definitely rank CF Industries Holdings 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, 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 relevant factors you should look at:
- Future Outlook: What are well-informed industry analysts predicting for CF’s future growth? Take a look at our free research report of analyst consensus for CF’s outlook.
- Valuation: What is CF 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 CF 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 editorial-team@simplywallst.com.