Over the past 10 years PPL Corporation (NYSE:PPL) has been paying dividends to shareholders. The company is currently worth US$23b, and now yields roughly 5.1%. Does PPL tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
How I analyze a dividend stock
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
- 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 the amount of dividend per share grown over the past?
- Can it afford to pay the current rate of dividends from its earnings?
- Will it be able to continue to payout at the current rate in the future?
How well does PPL fit our criteria?
The company currently pays out 76% 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 PPL’s payout to remain around the same level at 69% of its earnings, which leads to a dividend yield of around 5.4%. Moreover, EPS should increase to $2.43.
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 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. In the case of PPL it has increased its DPS from $1.34 to $1.64 in the past 10 years. It has also been paying out dividend consistently during this time, as you’d expect for a company increasing its dividend levels. These are all positive signs of a great, reliable dividend stock.
In terms of its peers, PPL has a yield of 5.1%, which is high for Electric Utilities stocks.
With these dividend metrics in mind, I definitely rank PPL 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, 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 important aspects you should further research:
- Future Outlook: What are well-informed industry analysts predicting for PPL’s future growth? Take a look at our free research report of analyst consensus for PPL’s outlook.
- Valuation: What is PPL 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 PPL 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.