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A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. Luminex Corporation (NASDAQ:LMNX) has recently paid dividends to shareholders, and currently yields 1.0%. Should it have a place in your portfolio? Let's take a look at Luminex in more detail.
5 checks you should do on 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 risen in the past couple of years?
- 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 does Luminex fare?
Luminex has a trailing twelve-month payout ratio of 58%, which means that the dividend is covered by earnings. In the near future, analysts are predicting a higher payout ratio of 69% which, assuming the share price stays the same, leads to a dividend yield of 1.0%. However, EPS is forecasted to fall to $0.27 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.
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. The reality is that it is too early to consider Luminex 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.
In terms of its peers, Luminex has a yield of 1.0%, which is high for Life Sciences stocks but still below the low risk savings rate.
Now you know to keep in mind the reason why investors should be careful investing in Luminex for the dividend. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. 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 pertinent factors you should look at:
- Future Outlook: What are well-informed industry analysts predicting for LMNX’s future growth? Take a look at our free research report of analyst consensus for LMNX’s outlook.
- Valuation: What is LMNX 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 LMNX 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 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.