Read This Before Considering Domtar Corporation (NYSE:UFS) For Its Upcoming US$0.43 Dividend
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If you are interested in cashing in on Domtar Corporation's (NYSE:UFS) upcoming dividend of US$0.43 per share, you only have 4 days left to buy the shares before its ex-dividend date, 01 April 2019, in time for dividends payable on the 15 April 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 Domtar's most recent financial data to examine its dividend characteristics in more detail.
See our latest analysis for Domtar
How I analyze a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
Is its annual yield among the top 25% of dividend-paying companies?
Does it consistently pay out dividends without missing a payment of significantly cutting payout?
Has dividend per share amount increased over the past?
Is its earnings sufficient to payout dividend at the current rate?
Will it be able to continue to payout at the current rate in the future?
How does Domtar fare?
The company currently pays out 39% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is covered by earnings. Going forward, analysts expect UFS's payout to increase to 52% of its earnings. Assuming a constant share price, this equates to a dividend yield of around 3.6%. In addition to this, EPS should increase to $5.43. 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 business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.
If there's one type of stock you want to be reliable, it's dividend stocks and their stable income-generating ability. The reality is that it is too early to consider Domtar as a dividend investment. It has only been consistently paying dividends for 9 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
In terms of its peers, Domtar generates a yield of 3.5%, which is high for Forestry stocks but still below the market's top dividend payers.
Next Steps:
Whilst there are few things you may like about Domtar from a dividend stock perspective, the truth is that overall it probably is not the best choice for a dividend investor. 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, 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. I've put together three pertinent factors you should further examine:
Future Outlook: What are well-informed industry analysts predicting for UFS’s future growth? Take a look at our free research report of analyst consensus for UFS’s outlook.
Valuation: What is UFS 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 UFS 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
