If you are interested in cashing in on Electrocomponents plc’s (LON:ECM) upcoming dividend of UK£0.053 per share, you only have 4 days left to buy the shares before its ex-dividend date, 29 November 2018, in time for dividends payable on the 09 January 2019. Is this future income stream a compelling catalyst for dividend investors to think about the stock as an investment today? Let’s take a look at Electrocomponents’s most recent financial data to examine its dividend characteristics in more detail.
Here’s how I find good dividend stocks
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
- Is its annual yield among the top 25% of dividend-paying companies?
- Has it paid dividend every year without dramatically reducing payout in the past?
- Has dividend per share amount increased over the past?
- Does earnings amply cover its dividend payments?
- Will the company be able to keep paying dividend based on the future earnings growth?
How does Electrocomponents fare?
The current trailing twelve-month payout ratio for the stock is 36%, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting a higher payout ratio of 42%, leading to a dividend yield of 3.1%. However, EPS is forecasted to fall to £0.36 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.
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.
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 Electrocomponents 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.
In terms of its peers, Electrocomponents has a yield of 2.4%, which is high for Electronic stocks but still below the market’s top dividend payers.
If you are building an income portfolio, then Electrocomponents is a complicated choice since it has some positive aspects as well as negative ones. 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, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. There are three key factors you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for ECM’s future growth? Take a look at our free research report of analyst consensus for ECM’s outlook.
- Valuation: What is ECM 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 ECM 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 firstname.lastname@example.org.