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Investors who want to cash in on Topdanmark A/S's (CPH:TOP) upcoming dividend of ø15.00 per share have only 4 days left to buy the shares before its ex-dividend date, 04 April 2019, in time for dividends payable on the 08 April 2019. What does this mean for current shareholders and potential investors? Below, I will explain how holding Topdanmark can impact your portfolio income stream, by analysing the stock's most recent financial data and dividend attributes.
How I analyze a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
- Is their annual yield among the top 25% of dividend payers?
- Does it consistently pay out dividends without missing a payment of significantly cutting payout?
- Has dividend per share amount increased over the past?
- Is is able to pay the current rate of dividends from its earnings?
- Will it have the ability to keep paying its dividends going forward?
How well does Topdanmark fit our criteria?
The company currently pays out 97% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is not well-covered by its earnings. In the near future, analysts are predicting a payout ratio of 98%, which, assuming the share price stays the same, leads to a dividend yield of 5.0%. Furthermore, EPS should increase to DKK16.66.
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.
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. The reality is that it is too early to consider Topdanmark as a dividend investment. Last year was the company's first dividend payment, so it is certainly early days. The standard practice for reliable payers is to look for 10 or so years of track record.
Compared to its peers, Topdanmark produces a yield of 4.5%, which is high for Insurance stocks.
Now you know to keep in mind the reason why investors should be careful investing in Topdanmark for the dividend. On the other hand, if you are not strictly just a dividend investor, the stock could still be offering some interesting investment opportunities. 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 factors you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for TOP’s future growth? Take a look at our free research report of analyst consensus for TOP’s outlook.
- Valuation: What is TOP 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 TOP 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.