Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. 3i Group plc (LON:III) has returned to shareholders over the past 10 years, an average dividend yield of 3.00% annually. Should it have a place in your portfolio? Let’s take a look at 3i Group in more detail. View out our latest analysis for 3i Group
5 checks you should use to assess a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
- Is it paying an annual yield above 75% of dividend payers?
- Has it paid dividend every year without dramatically reducing payout in the past?
- Has it increased its dividend per share amount over the past?
- Is its earnings sufficient to payout dividend at the current rate?
- Will the company be able to keep paying dividend based on the future earnings growth?
Does 3i Group pass our checks?
The company currently pays out 10.54% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is covered by earnings. In the near future, analysts are predicting a higher payout ratio of 24.40%, leading to a dividend yield of around 3.27%. However, EPS is forecasted to fall to £1.11 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.
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. Whilst its per-share payments have increased during the past 10 years, there has been some hiccups. Shareholders would have seen a few years of reduced payments in this time.
In terms of its peers, 3i Group generates a yield of 3.15%, which is high for Capital Markets stocks but still below the market’s top dividend payers.
Keeping in mind the dividend characteristics above, 3i Group is definitely worth considering for investors looking to build a dedicated income portfolio. 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. Below, I’ve compiled three fundamental aspects you should look at:
- Future Outlook: What are well-informed industry analysts predicting for III’s future growth? Take a look at our free research report of analyst consensus for III’s outlook.
- Valuation: What is III 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 III 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 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.