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, Interface Inc (NASDAQ:TILE) has been paying a dividend to shareholders. Today it yields 1.6%. Should it have a place in your portfolio? Let’s take a look at Interface in more detail.
5 questions to ask before buying a dividend stock
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
- Is it the top 25% annual dividend yield payer?
- Does it consistently pay out dividends without missing a payment of significantly cutting payout?
- Has dividend per share risen in the past couple of years?
- Is is able to pay the current rate of dividends from its earnings?
- Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
How does Interface fare?
Interface has a trailing twelve-month payout ratio of 32%, which means that the dividend is covered by earnings. In the near future, analysts are predicting lower payout ratio of 27%, leading to a dividend yield of 2.5%. However, EPS should increase to $1.5, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
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 dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. Although TILE’s per share payments have increased in the past 10 years, it has not been a completely smooth ride. Shareholders would have seen a few years of reduced payments in this time.
Relative to peers, Interface generates a yield of 1.6%, which is on the low-side for Commercial Services stocks.
Considering the dividend attributes we analyzed above, Interface is definitely worth keeping an eye on for someone looking to build a dedicated income portfolio. 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 pertinent aspects you should further research:
- Future Outlook: What are well-informed industry analysts predicting for TILE’s future growth? Take a look at our free research report of analyst consensus for TILE’s outlook.
- Valuation: What is TILE 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 TILE 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 email@example.com.