A sizeable part of portfolio returns can be produced by dividend stocks due to their contribution to compounding returns in the long run. Historically, La-Z-Boy Incorporated (NYSE:LZB) has paid a dividend to shareholders. It currently yields 1.6%. Let’s dig deeper into whether La-Z-Boy should have a place in your portfolio.
Here’s how I find good dividend stocks
If you are a dividend investor, you should always assess these five key metrics:
- Is it paying an annual yield above 75% of dividend payers?
- Does it consistently pay out dividends without missing a payment of significantly cutting payout?
- Has it increased its dividend per share amount over the past?
- Can it afford 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 La-Z-Boy fit our criteria?
La-Z-Boy has a trailing twelve-month payout ratio of 23%, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect LZB’s payout to remain around the same level at 24% of its earnings. Assuming a constant share price, this equates to a dividend yield of 1.9%. In addition to this, EPS should increase to $2.18.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. Unfortunately, it is really too early to view La-Z-Boy as a dividend investment. It has only been consistently paying dividends for 6 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
Relative to peers, La-Z-Boy generates a yield of 1.6%, which is on the low-side for Consumer Durables stocks.
Whilst there are few things you may like about La-Z-Boy from a dividend stock perspective, the truth is that overall it probably is not the best choice for a dividend investor. 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, 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 essential aspects you should further research:
- Future Outlook: What are well-informed industry analysts predicting for LZB’s future growth? Take a look at our free research report of analyst consensus for LZB’s outlook.
- Valuation: What is LZB 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 LZB 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.
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 firstname.lastname@example.org. 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.