Attention dividend hunters! Ellington Financial Inc. (NYSE:EFC) will be distributing its dividend of US$0.14 per share on the 25 April 2019, and will start trading ex-dividend in 4 days time on the 28 March 2019. What does this mean for current shareholders and potential investors? Below, I will explain how holding Ellington Financial can impact your portfolio income stream, by analysing the stock’s most recent financial data and dividend attributes.
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5 questions to ask before buying a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
- Is it paying an annual yield above 75% of dividend payers?
- Has it paid dividend every year without dramatically reducing payout in the past?
- Has dividend per share risen in the past couple of years?
- Does earnings amply cover its dividend payments?
- Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
How well does Ellington Financial fit our criteria?
The current trailing twelve-month payout ratio for EFC is 108%, meaning the dividend is not sufficiently covered by its earnings. In the near future, analysts are predicting a payout ratio of 100%, which, assuming the share price stays the same, leads to a dividend yield of around 9.1%. Moreover, EPS should increase to $1.54.
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. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. Unfortunately, it is really too early to view Ellington Financial as a dividend investment. It has only been consistently paying dividends for 8 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
Relative to peers, Ellington Financial generates a yield of 9.1%, which is high for Capital Markets stocks.
Now you know to keep in mind the reason why investors should be careful investing in Ellington Financial 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 recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. Below, I’ve compiled three pertinent aspects you should look at:
- Future Outlook: What are well-informed industry analysts predicting for EFC’s future growth? Take a look at our free research report of analyst consensus for EFC’s outlook.
- Valuation: What is EFC 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 EFC 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 email@example.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.