Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. Historically, Cogent Communications Holdings, Inc. (NASDAQ:CCOI) has been paying a dividend to shareholders. Today it yields 4.9%. Does Cogent Communications Holdings tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
Here’s how I find good dividend stocks
If you are a dividend investor, you should always assess these five key metrics:
- Is their annual yield among the top 25% 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 is able 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 well does Cogent Communications Holdings fit our criteria?
CCOI currently pays out twice what it is earning, according to its trailing twelve-month data, meaning that the dividend is predominantly funded by retained earnings. Furthermore, analysts are forecasting the payout ratio to remain at this high level going forward, leading to a future of uncertainty around the stability of CCOI’s dividend income.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.
If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. Unfortunately, it is really too early to view Cogent Communications Holdings as a dividend investment. It has only been consistently paying dividends for 7 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
Compared to its peers, Cogent Communications Holdings produces a yield of 4.9%, which is on the low-side for Telecom stocks.
Now you know to keep in mind the reason why investors should be careful investing in Cogent Communications Holdings for the dividend. 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, 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. I’ve put together three relevant factors you should further research:
- Future Outlook: What are well-informed industry analysts predicting for CCOI’s future growth? Take a look at our free research report of analyst consensus for CCOI’s outlook.
- Valuation: What is CCOI 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 CCOI 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 firstname.lastname@example.org.