Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. Ten Entertainment Group plc (LON:TEG) has started paying a dividend to shareholders. It currently trades on a yield of 6.2%. Should it have a place in your portfolio? Let’s take a look at Ten Entertainment Group in more detail.
How I analyze a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
- Is it the top 25% annual dividend yield payer?
- Has it paid dividend every year without dramatically reducing payout in the past?
- Has it increased its dividend per share amount over the past?
- Is its earnings sufficient to payout dividend at the current rate?
- Will it have the ability to keep paying its dividends going forward?
Does Ten Entertainment Group pass our checks?
The company currently pays out 78% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is covered by earnings. However, going forward, analysts expect TEG’s payout to fall to 60% of its earnings, which leads to a dividend yield of 5.7%. However, EPS should increase to £0.20, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. 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. Unfortunately, it is really too early to view Ten Entertainment Group as a dividend investment. It has only been paying out dividend for the past one year. Generally, the rule of thumb for determining whether a stock is a reliable dividend payer is that it should be consistently paying dividends for the past 10 years or more. Clearly there’s a long road ahead before we can ascertain whether TEG one as a stable dividend player.
Compared to its peers, Ten Entertainment Group has a yield of 6.2%, which is high for Hospitality stocks.
With this in mind, I definitely rank Ten Entertainment Group 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, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. I’ve put together three fundamental aspects you should further research:
- Future Outlook: What are well-informed industry analysts predicting for TEG’s future growth? Take a look at our free research report of analyst consensus for TEG’s outlook.
- Valuation: What is TEG 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 TEG 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.