If you are interested in cashing in on Associated British Foods plc’s (LON:ABF) upcoming dividend of UK£0.33 per share, you only have 4 days left to buy the shares before its ex-dividend date, 13 December 2018, in time for dividends payable on the 11 January 2019. Is this future income a persuasive enough catalyst for investors to think about Associated British Foods 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.
5 checks you should use to assess a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Is their annual yield among the top 25% 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?
- Can it afford to pay the current rate of dividends from its earnings?
- Will it have the ability to keep paying its dividends going forward?
Does Associated British Foods pass our checks?
The company currently pays out 35% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is covered by earnings. Going forward, analysts expect ABF’s payout to remain around the same level at 34% of its earnings, which leads to a dividend yield of around 2.3%. In addition to this, EPS should increase to £1.36.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. 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. ABF has increased its DPS from £0.20 to £0.45 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 ABF a true dividend rockstar.
Relative to peers, Associated British Foods has a yield of 2.0%, which is on the low-side for Food stocks.
With this in mind, I definitely rank Associated British Foods as a strong dividend stock, and makes it worth further research for anyone who likes steady income generation from their 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 essential aspects you should further research:
- Future Outlook: What are well-informed industry analysts predicting for ABF’s future growth? Take a look at our free research report of analyst consensus for ABF’s outlook.
- Valuation: What is ABF 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 ABF 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.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.