Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. Historically, discoverIE Group plc (LON:DSCV) has been paying a dividend to shareholders. Today it yields 2.3%. Let’s dig deeper into whether discoverIE Group should have a place in your portfolio.
How I analyze a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Is its annual yield among the top 25% of dividend-paying companies?
- 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?
- Is its earnings sufficient to payout dividend at the current rate?
- Will it have the ability to keep paying its dividends going forward?
Does discoverIE Group pass our checks?
discoverIE Group has a trailing twelve-month payout ratio of 54.0%, which means that the dividend is covered by earnings. In the near future, analysts are predicting lower payout ratio of 36.6%, leading to a dividend yield of around 2.6%. However, EPS should increase to £0.17, 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 business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.
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. Not only have dividend payouts from discoverIE Group fallen over the past 10 years, it has also been highly volatile during this time, with drops of over 25% in some years. This means that dividend hunters should probably steer clear of the stock, at least for now until the track record improves.
In terms of its peers, discoverIE Group produces a yield of 2.3%, which is high for Electronic stocks but still below the market’s top dividend payers.
Whilst there are few things you may like about discoverIE Group from a dividend stock perspective, the truth is that overall it probably is not the best choice for a dividend investor. 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 recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. There are three fundamental aspects you should look at:
- Future Outlook: What are well-informed industry analysts predicting for DSCV’s future growth? Take a look at our free research report of analyst consensus for DSCV’s outlook.
- Valuation: What is DSCV 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 DSCV 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 email@example.com.