Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. Over the past 8 years, Retail Opportunity Investments Corp (NASDAQ:ROIC) has returned an average of 4.00% per year to shareholders in terms of dividend yield. Does Retail Opportunity Investments tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis. Check out our latest analysis for Retail Opportunity Investments
How I analyze 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 it increased its dividend per share amount over the past?
- Is its earnings sufficient to payout dividend at the current rate?
- Will the company be able to keep paying dividend based on the future earnings growth?
How well does Retail Opportunity Investments fit our criteria?
Although REITs are expected to payout a high portion of the earnings, Retail Opportunity Investments currently pays out more than double its net income, which suggests that the dividend is not well-covered by earnings by any means. Furthermore, analysts are forecasting the payout ratio to remain at this high level going forward, leading to a future of uncertainty around the stability of ROIC’s dividend income.
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 Retail Opportunity Investments as a dividend investment. It has only been consistently paying dividends for 8 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.Relative to peers, Retail Opportunity Investments generates a yield of 4.17%, which is on the low-side for REITs stocks.
After digging a little deeper into Retail Opportunity Investments’s yield, it’s easy to see why you should be cautious investing in the company just for the dividend. On the other hand, if you are not strictly just a dividend investor, the stock could still be offering some interesting investment opportunities. 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. Below, I’ve compiled three key factors you should further research:
- Future Outlook: What are well-informed industry analysts predicting for ROIC’s future growth? Take a look at our free research report of analyst consensus for ROIC’s outlook.
- Valuation: What is ROIC 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 ROIC is currently mispriced by the market.
- Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.