Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. Over the past 3 years, Newtek Business Services Corp (NASDAQ:NEWT) has returned an average of 10.00% per year to shareholders in terms of dividend yield. Should it have a place in your portfolio? Let’s take a look at Newtek Business Services in more detail. See our latest analysis for Newtek Business Services
5 checks you should use to assess a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Is it paying an annual yield above 75% 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?
- Can it afford to pay the current rate of dividends from its earnings?
- Will it have the ability to keep paying its dividends going forward?
Does Newtek Business Services pass our checks?
The current trailing twelve-month payout ratio for the stock is 72.91%, which means that the dividend is covered by earnings. In the near future, analysts are predicting a higher payout ratio of 90.01%, leading to a dividend yield of 9.75%. However, EPS is forecasted to fall to $1.98 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income. This also brings about uncertainty around the sustainability of the payout ratio. 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. Unfortunately, it is really too early to view Newtek Business Services as a dividend investment. It has only been consistently paying dividends for 3 years, however, standard practice for reliable payers is to look for a 10-year minimum track record. Compared to its peers, Newtek Business Services generates a yield of 9.15%, which is high for Capital Markets stocks.
If Newtek Business Services is in your portfolio for cash-generating reasons, there may be better alternatives out there. 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, 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 aspects you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for NEWT’s future growth? Take a look at our free research report of analyst consensus for NEWT’s outlook.
- Valuation: What is NEWT 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 NEWT 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 pass 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.