Over the past 10 years Dunelm Group plc (LON:DNLM) has returned an average of 3.0% per year from dividend payouts. The company is currently worth UK£1.06b, and now yields roughly 4.8%. Should it have a place in your portfolio? Let’s take a look at Dunelm Group in more detail.
5 questions I ask before picking a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
- Is its annual yield among the top 25% of dividend-paying companies?
- Does it consistently pay out dividends without missing a payment of significantly cutting payout?
- Has dividend per share risen in the past couple of years?
- Is its earnings sufficient to payout dividend at the current rate?
- Will it be able to continue to payout at the current rate in the future?
Does Dunelm Group pass our checks?
The company currently pays out 72.3% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is covered by earnings. However, going forward, analysts expect DNLM’s payout to fall to 61.9% of its earnings, which leads to a dividend yield of around 5.3%. However, EPS should increase to £0.42, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. 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. In the case of DNLM it has increased its DPS from £0.040 to £0.25 in the past 10 years. During this period it has not missed a payment, as one would expect for a company increasing its dividend. These are all positive signs of a great, reliable dividend stock.
Compared to its peers, Dunelm Group generates a yield of 4.8%, which is high for Specialty Retail stocks but still below the market’s top dividend payers.
With these dividend metrics in mind, I definitely rank Dunelm Group as a strong income stock, and is worth further research for anyone who considers dividends an important part of their portfolio strategy. 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. I’ve put together three pertinent aspects you should look at:
- Future Outlook: What are well-informed industry analysts predicting for DNLM’s future growth? Take a look at our free research report of analyst consensus for DNLM’s outlook.
- Valuation: What is DNLM 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 DNLM is currently mispriced by the market.
- Other 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.