A sizeable part of portfolio returns can be produced by dividend stocks due to their contribution to compounding returns in the long run. Historically, Treasury Wine Estates Limited (ASX:TWE) has paid a dividend to shareholders. It currently yields 2.4%. Does Treasury Wine Estates tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
5 questions to ask before buying a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Does it pay an annual yield higher than 75% of dividend payers?
- 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?
- Does earnings amply cover its dividend payments?
- Will it have the ability to keep paying its dividends going forward?
Does Treasury Wine Estates pass our checks?
Treasury Wine Estates has a trailing twelve-month payout ratio of 64%, which means that the dividend is covered by earnings. In the near future, analysts are predicting a payout ratio of 65%, leading to a dividend yield of 3.5%. In addition to this, EPS should increase to A$0.63.
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 company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.
If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. The reality is that it is too early to consider Treasury Wine Estates as a dividend investment. It has only been consistently paying dividends for 7 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
In terms of its peers, Treasury Wine Estates generates a yield of 2.4%, which is on the low-side for Beverage stocks.
After digging a little deeper into Treasury Wine Estates’s yield, it’s easy to see why you should be cautious investing in the company just for the dividend. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. 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 relevant factors you should further research:
- Future Outlook: What are well-informed industry analysts predicting for TWE’s future growth? Take a look at our free research report of analyst consensus for TWE’s outlook.
- Valuation: What is TWE 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 TWE 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.