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A sizeable part of portfolio returns can be produced by dividend stocks due to their contribution to compounding returns in the long run. Historically, AVX Corporation (NYSE:AVX) has paid dividends to shareholders, and these days it yields 2.5%. Should it have a place in your portfolio? Let’s take a look at AVX in more detail.
5 questions to ask before buying a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
- Is its annual yield among the top 25% of dividend-paying companies?
- Does it consistently pay out dividends without missing a payment of significantly cutting payout?
- Has dividend per share risen in the past couple of years?
- Is its earnings sufficient to payout dividend at the current rate?
- Will it have the ability to keep paying its dividends going forward?
How well does AVX fit our criteria?
The current trailing twelve-month payout ratio for the stock is 33%, meaning the dividend is sufficiently covered by earnings. Furthermore, analysts have not forecasted a dividends per share for the future, which makes it hard to determine the yield shareholders should expect, and whether the current payout is sustainable, moving forward.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.
If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. In the case of AVX it has increased its DPS from $0.16 to $0.46 in the past 10 years. It has also been paying out dividend consistently during this time, as you’d expect for a company increasing its dividend levels. This is an impressive feat, which makes AVX a true dividend rockstar.
Compared to its peers, AVX produces a yield of 2.5%, which is high for Electronic stocks but still below the market’s top dividend payers.
With this in mind, I definitely rank AVX 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. There are three pertinent factors you should look at:
- Future Outlook: What are well-informed industry analysts predicting for AVX’s future growth? Take a look at our free research report of analyst consensus for AVX’s outlook.
- Valuation: What is AVX 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 AVX 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 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. On rare occasion, data errors may occur. Thank you for reading.