Attention dividend hunters! AZZ Inc (NYSE:AZZ) will be distributing its dividend of US$0.17 per share on the 30 October 2018, and will start trading ex-dividend in 3 days time on the 15 October 2018. Is this future income stream a compelling catalyst for dividend investors to think about the stock as an investment today? Let’s take a look at AZZ’s most recent financial data to examine its dividend characteristics in more detail.
5 checks you should do on 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 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?
- Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
How well does AZZ fit our criteria?
The company currently pays out 35% of its earnings as a dividend, according to its trailing twelve-month data, meaning the dividend is sufficiently covered by 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.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.
If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. The reality is that it is too early to consider AZZ as a dividend investment. It has only been consistently paying dividends for 9 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
Compared to its peers, AZZ generates a yield of 1.5%, which is on the low-side for Electrical stocks.
After digging a little deeper into AZZ’s yield, it’s easy to see why you should be cautious investing in the company just 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 recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. Below, I’ve compiled three key factors you should further research:
- Future Outlook: What are well-informed industry analysts predicting for AZZ’s future growth? Take a look at our free research report of analyst consensus for AZZ’s outlook.
- Valuation: What is AZZ 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 AZZ 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.