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Attention dividend hunters! Perrigo Company plc (NYSE:PRGO) will be distributing its dividend of US$0.19 per share on the 19 March 2019, and will start trading ex-dividend in 4 days time on the 28 February 2019. What does this mean for current shareholders and potential investors? Below, I will explain how holding Perrigo can impact your portfolio income stream, by analysing the stock’s most recent financial data and dividend attributes.
5 questions to ask before buying a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Does it pay an annual yield higher than 75% of dividend payers?
- Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
- Has it increased its dividend per share amount over the past?
- Can it afford to pay the current rate of dividends from its earnings?
- Will the company be able to keep paying dividend based on the future earnings growth?
How does Perrigo fare?
Perrigo has a trailing twelve-month payout ratio of 83%, which means that the dividend is covered by earnings. However, going forward, analysts expect PRGO’s payout to fall to 15% of its earnings. Assuming a constant share price, this equates to a dividend yield of around 1.6%. However, EPS should increase to $2.63, 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.
If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. PRGO has increased its DPS from $0.22 to $0.76 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 PRGO a true dividend rockstar.
In terms of its peers, Perrigo generates a yield of 1.6%, which is on the low-side for Pharmaceuticals stocks.
Keeping in mind the dividend characteristics above, Perrigo is definitely worth considering for investors looking to build a dedicated income portfolio. 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. There are three relevant factors you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for PRGO’s future growth? Take a look at our free research report of analyst consensus for PRGO’s outlook.
- Valuation: What is PRGO 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 PRGO 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 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.