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Should Pernod Ricard SA (EPA:RI) Be Part Of Your Dividend Portfolio?

Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. Historically, Pernod Ricard SA (EPA:RI) has paid dividends to shareholders, and these days it yields 1.8%. Does Pernod Ricard tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.

Check out our latest analysis for Pernod Ricard

5 questions I ask before picking a dividend stock

When researching a dividend stock, I always follow the following screening criteria:

  • Is their annual yield among the top 25% of dividend payers?

  • Has it paid dividend every year without dramatically reducing payout in the past?

  • Has the amount of dividend per share grown 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?

ENXTPA:RI Historical Dividend Yield September 17th 18
ENXTPA:RI Historical Dividend Yield September 17th 18

Does Pernod Ricard pass our checks?

Pernod Ricard has a trailing twelve-month payout ratio of 39.5%, which means that the dividend is covered by earnings. In the near future, analysts are predicting a higher payout ratio of 49.2%, leading to a dividend yield of 2.4%. Furthermore, EPS should increase to €5.99. The higher payout forecasted, along with higher earnings, should lead to greater dividend income for investors moving forward.

When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.

If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. Although RI’s per share payments have increased in the past 10 years, it has not been a completely smooth ride. Investors have seen reductions in the dividend per share in the past, although, it has picked up again.

Relative to peers, Pernod Ricard generates a yield of 1.8%, which is high for Beverage stocks but still below the market’s top dividend payers.

Next Steps:

Taking into account the dividend metrics, Pernod Ricard ticks most of the boxes as a strong dividend investment, putting it in my list of top dividend payers. 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. I’ve put together three important aspects you should further research:

  1. Future Outlook: What are well-informed industry analysts predicting for RI’s future growth? Take a look at our free research report of analyst consensus for RI’s outlook.

  2. Valuation: What is RI 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 RI is currently mispriced by the market.

  3. 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 editorial-team@simplywallst.com.

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