Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. In the last few years Hewlett Packard Enterprise Company (NYSE:HPE) has paid a dividend to shareholders. Today it yields 2.9%. Let’s dig deeper into whether Hewlett Packard Enterprise 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 it paying an annual yield above 75% of dividend payers?
- Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
- Has the amount of dividend per share grown over the past?
- Does earnings amply cover its dividend payments?
- Will the company be able to keep paying dividend based on the future earnings growth?
Does Hewlett Packard Enterprise pass our checks?
Hewlett Packard Enterprise has a trailing twelve-month payout ratio of 86%, which means that the dividend is covered by earnings. In the near future, analysts are predicting lower payout ratio of 27% which, assuming the share price stays the same, leads to a dividend yield of around 3.1%. However, EPS should increase to $1.02, 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 company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.
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. The reality is that it is too early to consider Hewlett Packard Enterprise as a dividend investment. It has only been consistently paying dividends for 3 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
Compared to its peers, Hewlett Packard Enterprise generates a yield of 2.9%, which is high for Tech stocks but still below the market’s top dividend payers.
Whilst there are few things you may like about Hewlett Packard Enterprise from a dividend stock perspective, the truth is that overall it probably is not the best choice for a dividend investor. 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, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. There are three pertinent factors you should further research:
- Future Outlook: What are well-informed industry analysts predicting for HPE’s future growth? Take a look at our free research report of analyst consensus for HPE’s outlook.
- Valuation: What is HPE 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 HPE 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 firstname.lastname@example.org. 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.