Want to participate in a short research study? Help shape the future of investing tools and receive a $20 prize!
Important news for shareholders and potential investors in GrafTech International Ltd. (NYSE:EAF): The dividend payment of US$0.085 per share will be distributed to shareholders on 29 March 2019, and the stock will begin trading ex-dividend at an earlier date, 27 February 2019. 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 GrafTech International’s most recent financial data to examine its dividend characteristics in more detail.
5 questions I ask before picking 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?
- Does earnings amply cover its dividend payments?
- Will the company be able to keep paying dividend based on the future earnings growth?
How does GrafTech International fare?
GrafTech International has a trailing twelve-month payout ratio of 8.2%, which means that the dividend is covered by earnings. Going forward, analysts expect EAF’s payout to increase to 9.9% of its earnings. Assuming a constant share price, this equates to a dividend yield of 2.4%. Furthermore, EPS should increase to $2.93. The higher payout forecasted, along with higher earnings, should lead to greater dividend income for investors moving forward.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. Unfortunately, it is really too early to view GrafTech International as a dividend investment. It has only been paying out dividend for the past one year. Generally, the rule of thumb for determining whether a stock is a reliable dividend payer is that it should be consistently paying dividends for the past 10 years or more. Clearly there’s a long road ahead before we can ascertain whether EAF one as a stable dividend player.
Compared to its peers, GrafTech International has a yield of 2.3%, which is on the low-side for Electrical stocks.
Taking all the above into account, GrafTech International 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. There are three important aspects you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for EAF’s future growth? Take a look at our free research report of analyst consensus for EAF’s outlook.
- Valuation: What is EAF 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 EAF 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 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.