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Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. Historically, Koninklijke DSM N.V. (AMS:DSM) has been paying a dividend to shareholders. Today it yields 2.3%. Does Koninklijke DSM 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
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
- 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 the amount of dividend per share grown 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?
Does Koninklijke DSM pass our checks?
Koninklijke DSM has a trailing twelve-month payout ratio of 38%, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect DSM's payout to increase to 44% of its earnings. Assuming a constant share price, this equates to a dividend yield of 2.7%. However, EPS is forecasted to fall to €4.96 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.
If there's one type of stock you want to be reliable, it's dividend stocks and their stable income-generating ability. DSM has increased its DPS from €1.2 to €2.3 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.
In terms of its peers, Koninklijke DSM produces a yield of 2.3%, which is on the low-side for Chemicals stocks.
With this in mind, I definitely rank Koninklijke DSM as a strong dividend stock, and makes it worth further research for anyone who likes steady income generation from their 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. There are three important factors you should look at:
- Future Outlook: What are well-informed industry analysts predicting for DSM’s future growth? Take a look at our free research report of analyst consensus for DSM’s outlook.
- Valuation: What is DSM 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 DSM 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.