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, Aperam S.A. (AMS:APAM) has paid dividends to shareholders, and these days it yields 5.5%. Let’s dig deeper into whether Aperam should have a place in your portfolio.
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5 questions I ask before picking 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 paid dividend every year without dramatically reducing payout in the past?
- Has dividend per share risen in the past couple of years?
- Does earnings amply cover its dividend payments?
- Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
Does Aperam pass our checks?
The current trailing twelve-month payout ratio for the stock is 40%, which means that the dividend is covered by earnings. In the near future, analysts are predicting a higher payout ratio of 56% which, assuming the share price stays the same, leads to a dividend yield of 6.6%. However, EPS is forecasted to fall to €3.04 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.
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. The reality is that it is too early to consider Aperam as a dividend investment. It has only been consistently paying dividends for 8 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
Relative to peers, Aperam produces a yield of 5.5%, which is high for Metals and Mining stocks but still below the market’s top dividend payers.
Whilst there are few things you may like about Aperam from a dividend stock perspective, the truth is that overall it probably is not the best choice for a dividend investor. 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. I’ve put together three relevant aspects you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for APAM’s future growth? Take a look at our free research report of analyst consensus for APAM’s outlook.
- Valuation: What is APAM 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 APAM 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.