A sizeable part of portfolio returns can be produced by dividend stocks due to their contribution to compounding returns in the long run. ATA Inc (NASDAQ:ATAI) has returned to shareholders over the past 5 years, an average dividend yield of 4.00% annually. Let’s dig deeper into whether ATA should have a place in your portfolio. Check out our latest analysis for ATA
5 checks you should do on a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
- Is it the top 25% annual dividend yield payer?
- Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
- Has dividend per share amount increased over the past?
- Is is able to pay the current rate of dividends from its earnings?
- Will it be able to continue to payout at the current rate in the future?
How well does ATA fit our criteria?
The current payout ratio for ATAI is negative, meaning that the company is not yet profitable and is paying dividend by dipping into its retained earnings. 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. The reality is that it is too early to consider ATA as a dividend investment. It has only been consistently paying dividends for 5 years, however, standard practice for reliable payers is to look for a 10-year minimum track record. Compared to its peers, ATA generates a yield of 6.83%, which is high for Consumer Services stocks.
Now you know to keep in mind the reason why investors should be careful investing in ATA for the dividend. 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 recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. There are three important factors you should further research:
- 1. Valuation: What is ATAI 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 ATAI is currently mispriced by the market.
- 2. Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on ATA’s board and the CEO’s back ground.
- 3. 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 pass 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.