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Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. Warpaint London PLC (LON:W7L) has paid a dividend to shareholders in the last few years. It currently yields 5.3%. Should it have a place in your portfolio? Let's take a look at Warpaint London in more detail.
5 questions to ask before buying a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Is it paying an annual yield above 75% 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?
- Will it be able to continue to payout at the current rate in the future?
Does Warpaint London pass our checks?
The current trailing twelve-month payout ratio for the stock is 70%, meaning the dividend is sufficiently covered by earnings. However, going forward, analysts expect W7L's payout to fall to 55% of its earnings. Assuming a constant share price, this equates to a dividend yield of 7.4%. However, EPS should increase to £0.076, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
When assessing the forecast sustainability of a dividend it is also worth considering 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 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 Warpaint London 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.
Compared to its peers, Warpaint London has a yield of 5.3%, which is high for Personal Products stocks.
Considering the dividend attributes we analyzed above, Warpaint London is definitely worth keeping an eye on for someone looking to build a dedicated income portfolio. 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. I've put together three relevant factors you should further research:
- Future Outlook: What are well-informed industry analysts predicting for W7L’s future growth? Take a look at our free research report of analyst consensus for W7L’s outlook.
- Valuation: What is W7L 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 W7L 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.