A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. Historically, HP Inc (NYSE:HPQ) has paid dividends to shareholders, and these days it yields 2.8%. Does HP tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
5 checks you should use to assess a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
- Is its annual yield among the top 25% of dividend-paying companies?
- Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
- Has it increased its dividend per share amount over the past?
- Does earnings amply cover its dividend payments?
- Will it be able to continue to payout at the current rate in the future?
How well does HP fit our criteria?
The current trailing twelve-month payout ratio for the stock is 20%, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting a higher payout ratio of 29%, leading to a dividend yield of around 2.6%. However, EPS is forecasted to fall to $2.28 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.
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.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. Although HPQ’s per share payments have increased in the past 10 years, it has not been a completely smooth ride. Investors have seen reductions in the dividend per share in the past, although, it has picked up again.
In terms of its peers, HP generates a yield of 2.8%, which is high for Tech stocks but still below the market’s top dividend payers.
With this in mind, I definitely rank HP 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, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. Below, I’ve compiled three fundamental factors you should further research:
- Future Outlook: What are well-informed industry analysts predicting for HPQ’s future growth? Take a look at our free research report of analyst consensus for HPQ’s outlook.
- Valuation: What is HPQ 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 HPQ 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 firstname.lastname@example.org.