Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. Recently, Nutrien Ltd (TSX:NTR) has returned an average of 2.00% per year to shareholders in terms of dividend yield. Should it have a place in your portfolio? Let’s take a look at Nutrien in more detail. View our latest analysis for Nutrien
5 checks you should use to assess a dividend stock
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
- Is its annual yield among the top 25% of dividend-paying companies?
- 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?
- Will it be able to continue to payout at the current rate in the future?
How does Nutrien fare?
The company currently pays out more than double of its earnings as a dividend, according to its trailing trailing twelve-month data, which suggests that the dividend is not well-covered by earnings by any means. However, going forward, analysts expect NTR’s payout to fall into a more sustainable range of 48.69% of its earnings, which leads to a dividend yield of 3.03%. Moreover, EPS should increase to $2.34, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment. 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 Nutrien as a dividend investment. It has only been paying out dividend for the past one year. Generally, the rule of thumb for determining whether a stock is a reliable dividend payer is that it should be consistently paying dividends for the past 10 years or more. Clearly there’s a long road ahead before we can ascertain whether NTR one as a stable dividend player. Compared to its peers, Nutrien produces a yield of 2.92%, which is high for Chemicals stocks but still below the market’s top dividend payers.
After digging a little deeper into Nutrien’s yield, it’s easy to see why you should be cautious investing in the company just for the dividend. On the other hand, if you are not strictly just a dividend investor, the stock could still be offering 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. I’ve put together three key factors you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for NTR’s future growth? Take a look at our free research report of analyst consensus for NTR’s outlook.
- Valuation: What is NTR 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 NTR 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.