Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. Historically, CDW Corporation (NASDAQ:CDW) has paid a dividend to shareholders. It currently yields 1.3%. Should it have a place in your portfolio? Let’s take a look at CDW in more detail.
Check out our latest analysis for CDW
5 checks you should use to assess a dividend stock
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
- Is its annual yield among the top 25% of dividend-paying companies?
- Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
- Has dividend per share amount increased over the past?
- 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?
Does CDW pass our checks?
The current trailing twelve-month payout ratio for the stock is 22%, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect CDW’s payout to remain around the same level at 22% of its earnings. Assuming a constant share price, this equates to a dividend yield of around 1.4%. In addition to this, EPS should increase to $4.63.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. 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. The reality is that it is too early to consider CDW as a dividend investment. It has only been consistently paying dividends for 5 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
In terms of its peers, CDW produces a yield of 1.3%, which is on the low-side for Electronic stocks.
Next Steps:
Now you know to keep in mind the reason why investors should be careful investing in CDW 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 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 fundamental factors you should look at:
- Future Outlook: What are well-informed industry analysts predicting for CDW’s future growth? Take a look at our free research report of analyst consensus for CDW’s outlook.
- Valuation: What is CDW 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 CDW 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.
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 editorial-team@simplywallst.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.