Over the past 10 years Pennon Group Plc (LON:PNN) has grown its dividend payouts from £0.20 to £0.39. With a market cap of UK£3.0b, Pennon Group pays out 76% of its earnings, leading to a 5.5% yield. Let me elaborate on you why the stock stands out for income investors like myself.
What Is A Dividend Rock Star?
It is a stock that pays a reliable and steady dividend over the past decade, at a rate that is competitive relative to the other dividend-paying companies on the market. More specifically:
- It is paying an annual yield above 75% of dividend payers
- It consistently pays out dividend without missing a payment or significantly cutting payout
- Its has increased its dividend per share amount over the past
- It can afford to pay the current rate of dividends from its earnings
- It is able to continue to payout at the current rate in the future
High Yield And Dependable
Pennon Group's yield sits at 5.5%, which is high for Water Utilities stocks. But the real reason Pennon Group stands out is because it has a proven track record of continuously paying out this level of dividends, from earnings, to shareholders and can be expected to continue paying in the future. This is a highly desirable trait for a stock holding if you're investor who wants a robust cash inflow from your portfolio over a long period of time.
If there is one thing that you want to be reliable in your life, it's dividend stocks and their constant income stream. PNN has increased its DPS from £0.20 to £0.39 in the past 10 years. It has also been paying out dividend consistently during this time, as you'd expect for a company increasing its dividend levels. This is an impressive feat, which makes PNN a true dividend rockstar.
Pennon Group has a trailing twelve-month payout ratio of 76%, which means that the dividend is covered by earnings. Going forward, analysts expect PNN's payout to remain around the same level at 82% of its earnings. Assuming a constant share price, this equates to a dividend yield of 6.3%. Moreover, EPS is forecasted to fall to £0.52 in the upcoming year.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
Pennon Group ticks all the boxes for what I look for in a dividend stock. If you are looking to build an income focused portfolio, this could be one to include. However, given 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 pertinent factors you should further research:
- Future Outlook: What are well-informed industry analysts predicting for PNN’s future growth? Take a look at our free research report of analyst consensus for PNN’s outlook.
- Valuation: What is PNN 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 PNN is currently mispriced by the market.
- Other Dividend Rockstars: Are there strong dividend payers with better fundamentals out there? Check out our free list of these great stocks here.
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