Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. Historically, Monadelphous Group Limited (ASX:MND) has paid a dividend to shareholders. It currently yields 4.7%. Let’s dig deeper into whether Monadelphous Group should have a place in your portfolio.
5 checks you should use to assess 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 the amount of dividend per share grown 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?
Does Monadelphous Group pass our checks?
The company currently pays out 81% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is covered by earnings. In the near future, analysts are predicting a payout ratio of 84%, leading to a dividend yield of around 5.1%. Furthermore, EPS is forecasted to fall to A$0.67 in the upcoming year.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
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. Dividend payments from Monadelphous Group have been volatile in the past 10 years, with some years experiencing significant drops of over 25%. These characteristics do not bode well for income investors seeking reliable stream of dividends.
Relative to peers, Monadelphous Group generates a yield of 4.7%, which is high for Construction stocks but still below the market’s top dividend payers.
Taking all the above into account, Monadelphous Group is a complicated pick for dividend investors given that there are a couple of positive things about it as well as negative. 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. There are three key factors you should look at:
- Future Outlook: What are well-informed industry analysts predicting for MND’s future growth? Take a look at our free research report of analyst consensus for MND’s outlook.
- Valuation: What is MND 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 MND 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.