Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. Recently, Kulicke and Soffa Industries Inc (NASDAQ:KLIC) has started paying dividends to shareholders. Today it yields 1.9%. Does Kulicke and Soffa Industries tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
How I analyze a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
- Is their annual yield among the top 25% of dividend payers?
- Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
- Has it increased its dividend per share amount over the past?
- Is its earnings sufficient to payout dividend at the current rate?
- Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
How well does Kulicke and Soffa Industries fit our criteria?
The current trailing twelve-month payout ratio for the stock is 12.3%, meaning the dividend is sufficiently 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.
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 is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. The reality is that it is too early to consider Kulicke and Soffa Industries as a dividend investment. It has only been paying out dividend for the past one year. Generally, the rule of thumb for determining whether a stock is a reliable dividend payer is that it should be consistently paying dividends for the past 10 years or more. Clearly there’s a long road ahead before we can ascertain whether KLIC one as a stable dividend player.
Compared to its peers, Kulicke and Soffa Industries produces a yield of 1.9%, which is on the low-side for Semiconductor stocks.
Now you know to keep in mind the reason why investors should be careful investing in Kulicke and Soffa Industries for the dividend. On the other hand, if you are not strictly just a dividend investor, the stock could still be offering some interesting investment opportunities. 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. I’ve put together three important factors you should further research:
- Future Outlook: What are well-informed industry analysts predicting for KLIC’s future growth? Take a look at our free research report of analyst consensus for KLIC’s outlook.
- Valuation: What is KLIC 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 KLIC 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.