Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. Tarena International, Inc. (NASDAQ:TEDU) has recently paid dividends to shareholders, and currently yields 1.6%. Let’s dig deeper into whether Tarena International should have a place in your portfolio.
5 questions to ask before buying a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
- 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 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 have the ability to keep paying its dividends going forward?
Does Tarena International pass our checks?
The current payout ratio for TEDU is negative, which is not great.
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. Unfortunately, it is really too early to view Tarena International as a dividend investment. It has only been consistently paying dividends for 2 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
Relative to peers, Tarena International produces a yield of 1.6%, which is on the low-side for Consumer Services stocks.
Now you know to keep in mind the reason why investors should be careful investing in Tarena International 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 factors you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for TEDU’s future growth? Take a look at our free research report of analyst consensus for TEDU’s outlook.
- Valuation: What is TEDU 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 TEDU 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.