A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. In the past 10 years Marshalls plc (LON:MSLH) has returned an average of 4.00% per year to investors in the form of dividend payouts. Should it have a place in your portfolio? Let’s take a look at Marshalls in more detail.
Here’s how I find good dividend stocks
When researching a dividend stock, I always follow the following screening criteria:
- Is their annual yield among the top 25% of dividend payers?
- Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
- Has it increased its dividend per share amount over the past?
- Does earnings amply cover its dividend payments?
- Will the company be able to keep paying dividend based on the future earnings growth?
How well does Marshalls fit our criteria?
The current trailing twelve-month payout ratio for the stock is 47.40%, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect MSLH’s payout to increase to 54.10% of its earnings, which leads to a dividend yield of 3.44%. Moreover, EPS should increase to £0.24. The higher payout forecasted, along with higher earnings, should lead to greater dividend income for investors moving forward.
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. Not only have dividend payouts from Marshalls fallen over the past 10 years, it has also been highly volatile during this time, with drops of over 25% in some years. This means that dividend hunters should probably steer clear of the stock, at least for now until the track record improves.
Relative to peers, Marshalls produces a yield of 2.41%, which is high for Basic Materials stocks but still below the market’s top dividend payers.
Taking all the above into account, Marshalls is a complicated pick for dividend investors given that there are a couple of positive things about it as well as negative. However, if you are not strictly just a dividend investor, the stock could still offer some interesting investment opportunities. 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 essential factors you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for MSLH’s future growth? Take a look at our free research report of analyst consensus for MSLH’s outlook.
- Valuation: What is MSLH 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 MSLH 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.
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 email@example.com.