Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. Historically, Patterson Companies, Inc. (NASDAQ:PDCO) has paid a dividend to shareholders. It currently yields 4.7%. Does Patterson Companies tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
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5 questions to ask before buying 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 its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
- Has dividend per share risen in the past couple of years?
- Can it afford to pay the current rate of dividends from its earnings?
- Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
How does Patterson Companies fare?
The company currently pays out 62% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is covered by earnings. Going forward, analysts expect PDCO’s payout to remain around the same level at 63% of its earnings. Assuming a constant share price, this equates to a dividend yield of 5.0%. In addition to this, EPS is forecasted to fall to $1.09 in the upcoming year.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. Unfortunately, it is really too early to view Patterson Companies as a dividend investment. It has only been consistently paying dividends for 9 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
Relative to peers, Patterson Companies produces a yield of 4.7%, which is high for Healthcare stocks.
With these dividend metrics in mind, I definitely rank Patterson Companies 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, 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 pertinent factors you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for PDCO’s future growth? Take a look at our free research report of analyst consensus for PDCO’s outlook.
- Valuation: What is PDCO 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 PDCO 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 firstname.lastname@example.org.