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Snap-on Incorporated (NYSE:SNA) has pleased shareholders over the past 10 years, by paying out dividends. The company currently pays out a dividend yield of 2.5% to shareholders, making it a relatively attractive dividend stock. Let’s dig deeper into whether Snap-on should have a place in your portfolio.
5 questions I ask before picking a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
- Is it paying an annual yield above 75% of dividend payers?
- Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
- Has dividend per share amount increased over the past?
- Is is able 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?
Does Snap-on pass our checks?
Snap-on has a trailing twelve-month payout ratio of 28%, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting a higher payout ratio of 32% which, assuming the share price stays the same, leads to a dividend yield of around 2.6%. Moreover, EPS should increase to $12.22. The higher payout forecasted, along with higher earnings, should lead to greater dividend income for investors moving forward.
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.
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. SNA has increased its DPS from $1.2 to $3.8 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.
Compared to its peers, Snap-on has a yield of 2.5%, which is high for Machinery stocks but still below the market’s top dividend payers.
With this in mind, I definitely rank Snap-on as a strong dividend stock, and makes it worth further research for anyone who likes steady income generation from their portfolio. 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. Below, I’ve compiled three important factors you should look at:
- Future Outlook: What are well-informed industry analysts predicting for SNA’s future growth? Take a look at our free research report of analyst consensus for SNA’s outlook.
- Valuation: What is SNA 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 SNA 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.
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 email@example.com. 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.