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Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. Historically, Grifols, S.A. (BME:GRF) has paid a dividend to shareholders. It currently yields 1.7%. Does Grifols tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
Here’s how I find good dividend stocks
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
- Is it paying an annual yield above 75% of dividend payers?
- Has it paid dividend every year without dramatically reducing payout in the past?
- Has it increased its dividend per share amount over the past?
- 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?
How well does Grifols fit our criteria?
Grifols has a trailing twelve-month payout ratio of 39%, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect GRF’s payout to remain around the same level at 36% of its earnings. Assuming a constant share price, this equates to a dividend yield of around 2.0%. In addition to this, EPS should increase to €1.04.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. 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.
Relative to peers, Grifols produces a yield of 1.7%, which is on the low-side for Biotechs stocks.
Taking all the above into account, Grifols is a complicated pick for dividend investors given that there are a couple of positive things about it as well as negative. However, if you are not strictly just a dividend investor, the stock could still offer some interesting investment opportunities. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. I’ve put together three relevant factors you should further research:
- Future Outlook: What are well-informed industry analysts predicting for GRF’s future growth? Take a look at our free research report of analyst consensus for GRF’s outlook.
- Valuation: What is GRF 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 GRF 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 firstname.lastname@example.org.