What To Know Before Buying Domtar Corporation (NYSE:UFS) For Its Dividend
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A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. Historically, Domtar Corporation (NYSE:UFS) has been paying a dividend to shareholders. Today it yields 3.3%. Let’s dig deeper into whether Domtar should have a place in your portfolio.
Check out our latest analysis for Domtar
5 checks you should use to assess a dividend stock
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
Is it the top 25% annual dividend yield payer?
Does it consistently pay out dividends without missing a payment of significantly cutting payout?
Has the amount of dividend per share grown over the past?
Can it afford to pay the current rate of dividends from its earnings?
Will it be able to continue to payout at the current rate in the future?
How well does Domtar fit our criteria?
The current trailing twelve-month payout ratio for the stock is 39%, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect UFS’s payout to increase to 52% of its earnings. Assuming a constant share price, this equates to a dividend yield of around 3.4%. Furthermore, EPS should increase to $5.43. 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. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.
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. The reality is that it is too early to consider Domtar 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, Domtar produces a yield of 3.3%, which is high for Forestry stocks but still below the market’s top dividend payers.
Next Steps:
If you are building an income portfolio, then Domtar is a complicated choice since it has some positive aspects as well as negative ones. 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 pertinent factors you should look at:
Future Outlook: What are well-informed industry analysts predicting for UFS’s future growth? Take a look at our free research report of analyst consensus for UFS’s outlook.
Valuation: What is UFS 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 UFS 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 editorial-team@simplywallst.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.
