Is Dolby Laboratories Inc (NYSE:DLB) A Smart Pick For Income Investors?
Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. Dolby Laboratories Inc (NYSE:DLB) has recently paid dividends to shareholders, and currently yields 1.1%. Does Dolby Laboratories tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
View our latest analysis for Dolby Laboratories
How I analyze 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 dividend per share risen in the past couple of years?
Can it afford to pay the current rate of dividends from its earnings?
Will it have the ability to keep paying its dividends going forward?
How well does Dolby Laboratories fit our criteria?
Dolby Laboratories has a trailing twelve-month payout ratio of 57%, meaning the dividend is sufficiently covered by earnings. However, going forward, analysts expect DLB’s payout to fall to 24% of its earnings, which leads to a dividend yield of around 1.2%. However, EPS should increase to $2.45, 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. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.
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 Dolby Laboratories as a dividend investment. It has only been consistently paying dividends for 4 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
In terms of its peers, Dolby Laboratories has a yield of 1.1%, which is on the low-side for Electronic stocks.
Next Steps:
Now you know to keep in mind the reason why investors should be careful investing in Dolby Laboratories for the dividend. On the other hand, if you are not strictly just a dividend investor, the stock could still be offering some interesting investment opportunities. 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. Below, I’ve compiled three essential aspects you should further research:
Future Outlook: What are well-informed industry analysts predicting for DLB’s future growth? Take a look at our free research report of analyst consensus for DLB’s outlook.
Valuation: What is DLB 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 DLB 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 editorial-team@simplywallst.com.
