A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. Scout24 AG (FRA:G24) has recently paid dividends to shareholders, and currently yields 1.4%. Should it have a place in your portfolio? Let’s take a look at Scout24 in more detail.
How I analyze a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Is its annual yield among the top 25% of dividend-paying companies?
- Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
- Has it increased its dividend per share amount over the past?
- 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?
How well does Scout24 fit our criteria?
Scout24 has a trailing twelve-month payout ratio of 47%, meaning the dividend is sufficiently covered by earnings. However, going forward, analysts expect G24’s payout to fall to 39% of its earnings. Assuming a constant share price, this equates to a dividend yield of 2.0%. However, EPS should increase to €1.5, 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. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. The reality is that it is too early to consider Scout24 as a dividend investment. It has only been consistently paying dividends for 2 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
In terms of its peers, Scout24 produces a yield of 1.4%, which is high for Interactive Media and Services stocks but still below the low risk savings rate.
After digging a little deeper into Scout24’s yield, it’s easy to see why you should be cautious investing in the company just for the dividend. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. 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 essential aspects you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for G24’s future growth? Take a look at our free research report of analyst consensus for G24’s outlook.
- Valuation: What is G24 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 G24 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 email@example.com.