A sizeable part of portfolio returns can be produced by dividend stocks due to their contribution to compounding returns in the long run. Hewlett Packard Enterprise Company (NYSE:HPE) has recently paid dividends to shareholders, and currently yields 2.8%. Let’s dig deeper into whether Hewlett Packard Enterprise should have a place in your portfolio.
Here’s how I find good dividend stocks
If you are a dividend investor, you should always assess these five key metrics:
- Is their annual yield among the top 25% of dividend payers?
- Does it consistently pay out dividends without missing a payment of significantly cutting payout?
- Has the amount of dividend per share grown 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 Hewlett Packard Enterprise fit our criteria?
The current trailing twelve-month payout ratio for the stock is 86%, which means that the dividend is covered by earnings. In the near future, analysts are predicting lower payout ratio of 27% which, assuming the share price stays the same, leads to a dividend yield of 3.0%. However, EPS should increase to $1.03, 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.
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. Unfortunately, it is really too early to view Hewlett Packard Enterprise as a dividend investment. It has only been consistently paying dividends for 3 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
Compared to its peers, Hewlett Packard Enterprise has a yield of 2.8%, which is high for Tech stocks but still below the market’s top dividend payers.
Taking all the above into account, Hewlett Packard Enterprise is a complicated pick for dividend investors given that there are a couple of positive things about it as well as negative. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. 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 fundamental aspects you should look at:
- Future Outlook: What are well-informed industry analysts predicting for HPE’s future growth? Take a look at our free research report of analyst consensus for HPE’s outlook.
- Valuation: What is HPE 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 HPE 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 email@example.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.