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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, Bumitama Agri Ltd. (SGX:P8Z) has paid a dividend to shareholders. It currently yields 4.0%. Let’s dig deeper into whether Bumitama Agri should have a place in your portfolio.
Here’s how I find good dividend stocks
When researching a dividend stock, I always follow the following screening criteria:
- Does it pay an annual yield higher than 75% of dividend payers?
- 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?
- Can it afford 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 does Bumitama Agri fare?
The current trailing twelve-month payout ratio for the stock is 40%, which means that the dividend is covered by earnings. However, going forward, analysts expect P8Z’s payout to fall to 30% of its earnings. Assuming a constant share price, this equates to a dividend yield of 3.1%. Moreover, EPS is also forecasted to fall to IDR682.64 in the upcoming year. The lower EPS on top of a lower payout ratio will lead to a fall in dividend payment moving forward.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. The reality is that it is too early to consider Bumitama Agri as a dividend investment. It has only been consistently paying dividends for 6 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
Relative to peers, Bumitama Agri has a yield of 4.0%, which is high for Food stocks but still below the market’s top dividend payers.
Whilst there are few things you may like about Bumitama Agri from a dividend stock perspective, the truth is that overall it probably is not the best choice for a dividend investor. 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 key aspects you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for P8Z’s future growth? Take a look at our free research report of analyst consensus for P8Z’s outlook.
- Valuation: What is P8Z 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 P8Z 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.