Shares of COFACE SA (EPA:COFA) will begin trading ex-dividend in 3 days. To qualify for the dividend check of €0.79 per share, investors must have owned the shares prior to 22 May 2019, which is the last day the company's management will finalize their list of shareholders to which they will send dividend payments. Is this future income a persuasive enough catalyst for investors to think about COFACE 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.
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5 questions to ask before buying a dividend stock
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
- Is it the top 25% annual dividend yield payer?
- Does it consistently pay out dividends without missing a payment of significantly cutting payout?
- Has dividend per share amount increased over the past?
- Can it afford to pay the current rate of dividends from its earnings?
- Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
How does COFACE fare?
COFACE has a trailing twelve-month payout ratio of 99%, meaning the dividend is not sufficiently covered by its earnings. However, going forward, analysts expect COFA's payout to fall into a more sustainable range of 67% of its earnings. Assuming a constant share price, this equates to a dividend yield of around 6.4%. Moreover, EPS should increase to €0.82, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
Reliability 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 COFACE 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.
In terms of its peers, COFACE has a yield of 8.7%, which is high for Insurance stocks.
If you are building an income portfolio, then COFACE is a complicated choice since it has some positive aspects as well as negative ones. 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, 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 fundamental factors you should further research:
- Future Outlook: What are well-informed industry analysts predicting for COFA’s future growth? Take a look at our free research report of analyst consensus for COFA’s outlook.
- Valuation: What is COFA 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 COFA 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.