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On the 01 March 2019, KLA-Tencor Corporation (NASDAQ:KLAC) will be paying shareholders an upcoming dividend amount of US$0.75 per share. However, investors must have bought the company’s stock before 14 February 2019 in order to qualify for the payment. That means you have only 2 days left! Is this future income a persuasive enough catalyst for investors to think about KLA-Tencor as an investment today? Below, I’m going to look at the latest data and analyze the stock and its dividend property in further detail.
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 its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
- Has dividend per share risen in the past couple of years?
- 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 KLA-Tencor fit our criteria?
The company currently pays out 31% 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 a higher payout ratio of 36% which, assuming the share price stays the same, leads to a dividend yield of 3.0%. However, EPS is forecasted to fall to $8.51 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.
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. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.
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. KLAC has increased its DPS from $0.60 to $3 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 KLAC a true dividend rockstar.
Relative to peers, KLA-Tencor has a yield of 2.8%, which is high for Semiconductor stocks but still below the market’s top dividend payers.
Keeping in mind the dividend characteristics above, KLA-Tencor is definitely worth considering for investors looking to build a dedicated income portfolio. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. There are three key aspects you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for KLAC’s future growth? Take a look at our free research report of analyst consensus for KLAC’s outlook.
- Valuation: What is KLAC 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 KLAC 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 firstname.lastname@example.org.