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Does Johnson Matthey Plc (LON:JMAT) Have A Place In Your Portfolio?

There is a lot to be liked about Johnson Matthey Plc (LON:JMAT) as an income stock. It has paid dividends over the past 10 years. The company currently pays out a dividend yield of 2.8% to shareholders, making it a relatively attractive dividend stock. Does Johnson Matthey tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.

Check out our latest analysis for Johnson Matthey

5 questions I ask before picking a dividend stock

When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:

  • Does it pay an annual yield higher than 75% of dividend payers?

  • Has it paid dividend every year without dramatically reducing payout in the past?

  • Has dividend per share amount increased over the past?

  • Does earnings amply cover its dividend payments?

  • Will the company be able to keep paying dividend based on the future earnings growth?

LSE:JMAT Historical Dividend Yield November 20th 18
LSE:JMAT Historical Dividend Yield November 20th 18

Does Johnson Matthey pass our checks?

Johnson Matthey has a trailing twelve-month payout ratio of 52%, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting lower payout ratio of 38%, leading to a dividend yield of around 3.2%. However, EPS should increase to £2.16, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.

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 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. JMAT has increased its DPS from £0.41 to £0.80 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. These are all positive signs of a great, reliable dividend stock.

Compared to its peers, Johnson Matthey produces a yield of 2.8%, which is high for Chemicals stocks but still below the market’s top dividend payers.

Next Steps:

Considering the dividend attributes we analyzed above, Johnson Matthey is definitely worth keeping an eye on for someone looking to build a dedicated income portfolio. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. Below, I’ve compiled three important factors you should look at:

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

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

  3. 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.

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