A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. Over the past 4 years, CareTrust REIT Inc (NASDAQ:CTRE) has returned an average of 5.00% per year to shareholders in terms of dividend yield. Does CareTrust REIT tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis. Check out our latest analysis for CareTrust REIT
5 questions I ask before picking a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Is it the top 25% annual dividend yield payer?
- Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
- Has it increased its dividend per share amount over the past?
- Can it afford to pay the current rate of dividends from its earnings?
- Will the company be able to keep paying dividend based on the future earnings growth?
Does CareTrust REIT pass our checks?
REITs are a special-case dividend payer. This is because a high percentage of their earnings are required to be paid out as dividends. CareTrust REIT has a trailing twelve-month payout ratio of 190.59%, meaning that a portion of dividend payments are funded by retained earnings. Furthermore, analysts have not forecasted a dividends per share for the future, which makes it hard to determine the yield shareholders should expect, and whether the current payout is sustainable, moving forward.
Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. Unfortunately, it is really too early to view CareTrust REIT 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.
Relative to peers, CareTrust REIT produces a yield of 4.84%, which is high for REITs stocks.
After digging a little deeper into CareTrust REIT’s yield, it’s easy to see why you should be cautious investing in the company just 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, 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. Below, I’ve compiled three essential aspects you should further research:
- Future Outlook: What are well-informed industry analysts predicting for CTRE’s future growth? Take a look at our free research report of analyst consensus for CTRE’s outlook.
- Valuation: What is CTRE 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 CTRE 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 pass 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.