There is a lot to be liked about Pennon Group Plc (LON:PNN) as an income stock. It has paid dividends over the past 10 years. The company currently pays out a dividend yield of 5.1% to shareholders, making it a relatively attractive dividend stock. Does Pennon Group tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
5 checks you should do on a dividend stock
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
- Is it the top 25% annual dividend yield payer?
- Does it consistently pay out dividends without missing a payment of significantly cutting payout?
- Has dividend per share amount increased over the past?
- Does earnings amply cover its dividend payments?
- Will it be able to continue to payout at the current rate in the future?
How does Pennon Group fare?
Pennon Group has a trailing twelve-month payout ratio of 80%, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting a payout ratio of 76%, leading to a dividend yield of 5.8%. In addition to this, EPS should increase to £0.52.
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 there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. In the case of PNN it has increased its DPS from £0.20 to £0.39 in the past 10 years. It has also been paying out dividend consistently during this time, as you’d expect for a company increasing its dividend levels. These are all positive signs of a great, reliable dividend stock.
Compared to its peers, Pennon Group produces a yield of 5.1%, 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, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. I’ve put together three key 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 email@example.com.