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Does FDM Group (Holdings) PLC (LON:FDM) Have A Place In Your Dividend Stock Portfolio?

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A sizeable part of portfolio returns can be produced by dividend stocks due to their contribution to compounding returns in the long run. In the last few years FDM Group (Holdings) PLC (LON:FDM) has paid a dividend to shareholders. Today it yields 3.4%. Should it have a place in your portfolio? Let’s take a look at FDM Group (Holdings) in more detail.

Check out our latest analysis for FDM Group (Holdings)

5 checks you should do on a dividend stock

When researching a dividend stock, I always follow the following screening criteria:

  • Is its annual yield among the top 25% of dividend-paying companies?

  • Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?

  • Has dividend per share risen in the past couple of years?

  • Is its earnings sufficient to payout dividend at the current rate?

  • Will it have the ability to keep paying its dividends going forward?

LSE:FDM Historical Dividend Yield November 23rd 18
LSE:FDM Historical Dividend Yield November 23rd 18

Does FDM Group (Holdings) pass our checks?

FDM Group (Holdings) has a trailing twelve-month payout ratio of 89%, which means that the dividend is covered by earnings. In the near future, analysts are predicting a higher payout ratio of 93%, leading to a dividend yield of 4.0%. In addition to this, EPS should increase to £0.33. The higher payout forecasted, along with higher earnings, should lead to greater dividend income for investors moving forward. However this does bring about uncertainty around the sustainability of the payout ratio.

If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider 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 is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. The reality is that it is too early to consider FDM Group (Holdings) as a dividend investment. It has only been consistently paying dividends for 4 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.

In terms of its peers, FDM Group (Holdings) generates a yield of 3.4%, which is high for IT stocks but still below the market’s top dividend payers.

Next Steps:

Now you know to keep in mind the reason why investors should be careful investing in FDM Group (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, 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 essential aspects you should further examine:

  1. Future Outlook: What are well-informed industry analysts predicting for FDM’s future growth? Take a look at our free research report of analyst consensus for FDM’s outlook.

  2. Valuation: What is FDM 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 FDM is currently mispriced by the market.

  3. 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.