What Should You Know Before Buying STM Group Plc (LON:STM) For Its Dividend
A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. Over the past 9 years, STM Group Plc (AIM:STM) has returned an average of 2.00% per year to shareholders in terms of dividend yield. Should it have a place in your portfolio? Let’s take a look at STM Group in more detail. Check out our latest analysis for STM Group
5 checks you should do on 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 paid dividend every year without dramatically reducing payout in the past?
Has the amount of dividend per share grown over the past?
Is is able 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 well does STM Group fit our criteria?
The company currently pays out 28.52% of its earnings as a dividend, which means that the dividend is covered by earnings. Furthermore, analysts have not forecasted a dividends per share for the future, which makes it hard to determine the yield shareholders should expect, and whether the current payout is sustainable, moving forward. 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. The reality is that it is too early to consider STM Group 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, STM Group generates a yield of 4.30%, which is high for capital markets stocks.
Next Steps:
If STM Group is in your portfolio for cash-generating reasons, there may be better alternatives out there. 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. I’ve put together three relevant aspects you should look at:
1. Future Outlook: What are well-informed industry analysts predicting for STM’s future growth? Take a look at our free research report of analyst consensus for STM’s outlook.
2. Valuation: What is STM 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 STM is currently mispriced by the market.
3. 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 pass 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.
