On the 30 May 2019, Greggs plc (LON:GRG) will be paying shareholders an upcoming dividend amount of UK£0.25 per share. However, investors must have bought the company's stock before 25 April 2019 in order to qualify for the payment. That means you have only 3 days left! Is this future income stream a compelling catalyst for dividend investors to think about the stock as an investment today? Let's take a look at Greggs's most recent financial data to examine its dividend characteristics in more detail.
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:
- 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 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 Greggs fit our criteria?
The company currently pays out 55% of its earnings as a dividend, according to its trailing twelve-month data, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect GRG's payout to remain around the same level at 51% of its earnings. Assuming a constant share price, this equates to a dividend yield of around 2.3%. Furthermore, EPS should increase to £0.76.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.
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. GRG has increased its DPS from £0.15 to £0.36 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 GRG a true dividend rockstar.
Compared to its peers, Greggs produces a yield of 2.0%, which is on the low-side for Hospitality stocks.
Considering the dividend attributes we analyzed above, Greggs is definitely worth keeping an eye on for someone looking to build a dedicated income portfolio. 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. I've put together three important factors you should look at:
- Future Outlook: What are well-informed industry analysts predicting for GRG’s future growth? Take a look at our free research report of analyst consensus for GRG’s outlook.
- Valuation: What is GRG 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 GRG 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.
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 firstname.lastname@example.org. 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.