A sizeable part of portfolio returns can be produced by dividend stocks due to their contribution to compounding returns in the long run. Electrocomponents plc (LON:ECM) has returned to shareholders over the past 10 years, an average dividend yield of 5.00% annually. Let’s dig deeper into whether Electrocomponents should have a place in your portfolio.
5 questions I ask before picking a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Does it pay an annual yield higher than 75% of dividend payers?
- 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?
How does Electrocomponents fare?
Electrocomponents has a trailing twelve-month payout ratio of 39.07%, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect ECM’s payout to remain around the same level at 41.91% of its earnings, which leads to a dividend yield of 2.27%. Furthermore, EPS should increase to £0.34.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. Whilst its per-share payments have increased during the past 10 years, there has been some hiccups. Investors have seen reductions in the dividend per share in the past, although, it has picked up again.
Compared to its peers, Electrocomponents produces a yield of 1.78%, which is high for Electronic stocks but still below the market’s top dividend payers.
Keeping in mind the dividend characteristics above, Electrocomponents is definitely worth considering for investors looking to build a dedicated income portfolio. 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 further examine:
- Future Outlook: What are well-informed industry analysts predicting for ECM’s future growth? Take a look at our free research report of analyst consensus for ECM’s outlook.
- Valuation: What is ECM 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 ECM 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.