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Shares of Ellington Financial LLC (NYSE:EFC) will begin trading ex-dividend in 4 days. To qualify for the dividend check of US$0.41 per share, investors must have owned the shares prior to 28 February 2019, which is the last day the company’s management will finalize their list of shareholders to which they will send dividend payments. 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.
Here’s how I find good dividend stocks
When researching a dividend stock, I always follow the following screening criteria:
- Is its annual yield among the top 25% of dividend-paying companies?
- Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
- Has the amount of dividend per share grown over the past?
- Is its earnings sufficient to payout dividend at the current rate?
- 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?
Ellington Financial has a trailing twelve-month payout ratio of 91%, which means that the dividend is not well-covered by its earnings. In the near future, analysts are predicting a higher payout ratio of 101% which, assuming the share price stays the same, leads to a dividend yield of around 9.5%. However, EPS is forecasted to fall to $1.62 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.
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 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 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.
In terms of its peers, Ellington Financial generates a yield of 9.6%, which is high for Capital Markets stocks.
After digging a little deeper into Ellington Financial’s yield, it’s easy to see why you should be cautious investing in the company just for the dividend. On the other hand, if you are not strictly just a dividend investor, the stock could still be offering some interesting investment opportunities. 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. There are three important factors you should further research:
- 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.