Should You Buy Smith & Nephew plc (LON:SN.) For Its Dividend?
A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. Historically, Smith & Nephew plc (LON:SN.) has paid dividends to shareholders, and these days it yields 1.9%. Does Smith & Nephew tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
Check out our latest analysis for Smith & Nephew
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Here’s how I find good dividend stocks
When researching a dividend stock, I always follow the following screening criteria:
Is it paying an annual yield above 75% of dividend payers?
Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
Has dividend per share risen in the past couple of years?
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 Smith & Nephew fit our criteria?
The current trailing twelve-month payout ratio for the stock is 45%, which means that the dividend is covered by earnings. In the near future, analysts are predicting lower payout ratio of 37% which, assuming the share price stays the same, leads to a dividend yield of 2.3%. Moreover, EPS is also forecasted to fall to $0.78 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 considering the sustainability of dividends, it is also worth checking the cash flow of a company. 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. SN. has increased its DPS from $0.12 to $0.35 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 SN. a true dividend rockstar.
Compared to its peers, Smith & Nephew generates a yield of 1.9%, which is on the low-side for Medical Equipment stocks.
Next Steps:
With this in mind, I definitely rank Smith & Nephew 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 urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. There are three fundamental aspects you should further examine:
Future Outlook: What are well-informed industry analysts predicting for SN.’s future growth? Take a look at our free research report of analyst consensus for SN.’s outlook.
Valuation: What is SN. 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 SN. 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 editorial-team@simplywallst.com.
