If you are interested in cashing in on Pennon Group Plc’s (LON:PNN) upcoming dividend of UK£0.13 per share, you only have 4 days left to buy the shares before its ex-dividend date, 24 January 2019, in time for dividends payable on the 04 April 2019. Investors looking for higher income-generating stocks to add to their portfolio should keep reading, as I take a deeper dive into Pennon Group’s latest financial data to analyse its dividend attributes.
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How I analyze a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
- Is their annual yield among the top 25% of dividend payers?
- Does it consistently pay out dividends without missing a payment of significantly cutting payout?
- Has dividend per share amount increased over the past?
- Is is able to pay the current rate of dividends from its earnings?
- Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
Does Pennon Group pass our checks?
The current trailing twelve-month payout ratio for the stock is 76%, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting a higher payout ratio of 88% which, assuming the share price stays the same, leads to a dividend yield of around 5.8%. In addition to this, EPS should increase to £0.53. The higher payout forecasted, along with higher earnings, should lead to greater dividend income for investors moving forward.
If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider the cash flow of the business. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.
Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. PNN has increased its DPS from £0.20 to £0.39 in the past 10 years. During this period it has not missed a payment, as one would expect for a company increasing its dividend. This is an impressive feat, which makes PNN a true dividend rockstar.
Relative to peers, Pennon Group generates a yield of 5.2%, which is high for Water Utilities stocks but still below the market’s top dividend payers.
With this in mind, I definitely rank Pennon Group as a strong dividend stock, and makes it worth further research for anyone who likes steady income generation from their portfolio. 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. Below, I’ve compiled three relevant 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 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.