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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, Jerónimo Martins, SGPS, S.A. (ELI:JMT) has paid dividends to shareholders, and these days it yields 4.8%. Should it have a place in your portfolio? Let’s take a look at Jerónimo Martins SGPS in more detail.
5 questions I ask before picking a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Is their annual yield among the top 25% of dividend payers?
- Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
- Has dividend per share risen in the past couple of years?
- Is is able to pay the current rate of dividends from its earnings?
- Will the company be able to keep paying dividend based on the future earnings growth?
Does Jerónimo Martins SGPS pass our checks?
The company currently pays out 98% of its earnings as a dividend, according to its trailing twelve-month data, meaning the dividend is not sufficiently covered by its earnings. However, going forward, analysts expect JMT’s payout to fall into a more sustainable range of 76% of its earnings. Assuming a constant share price, this equates to a dividend yield of 3.5%. Furthermore, EPS should increase to €0.68, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider the cash flow of the business. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
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. Although JMT’s per share payments have increased in the past 10 years, it has not been a completely smooth ride. Investors have seen reductions in the dividend per share in the past, although, it has picked up again.
In terms of its peers, Jerónimo Martins SGPS produces a yield of 4.8%, which is high for Consumer Retailing stocks but still below the market’s top dividend payers.
Taking all the above into account, Jerónimo Martins SGPS 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. There are three fundamental factors you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for JMT’s future growth? Take a look at our free research report of analyst consensus for JMT’s outlook.
- Valuation: What is JMT 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 JMT 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.