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Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. Historically, MSCI Inc. (NYSE:MSCI) has paid dividends to shareholders, and these days it yields 1.1%. Does MSCI tick all the boxes of a great dividend stock? Below, I'll take you through my analysis.
5 checks you should do on a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
- 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 dividend per share amount increased over the past?
- Does earnings amply cover its dividend payments?
- Will it be able to continue to payout at the current rate in the future?
Does MSCI pass our checks?
MSCI has a trailing twelve-month payout ratio of 33%, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting a higher payout ratio of 37% which, assuming the share price stays the same, leads to a dividend yield of 1.3%. In addition to this, EPS should increase to $5.95. The higher payout forecasted, along with higher earnings, should lead to greater dividend income for investors moving forward.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
If there's one type of stock you want to be reliable, it's dividend stocks and their stable income-generating ability. Unfortunately, it is really too early to view MSCI as a dividend investment. It has only been consistently paying dividends for 5 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
Compared to its peers, MSCI produces a yield of 1.1%, which is on the low-side for Capital Markets stocks.
Now you know to keep in mind the reason why investors should be careful investing in MSCI 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 important factors you should look at:
- Future Outlook: What are well-informed industry analysts predicting for MSCI’s future growth? Take a look at our free research report of analyst consensus for MSCI’s outlook.
- Valuation: What is MSCI 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 MSCI 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.