Important news for shareholders and potential investors in The Royal Bank of Scotland Group plc (LON:RBS): The dividend payment of UK£0.11 per share will be distributed to shareholders on 30 April 2019, and the stock will begin trading ex-dividend at an earlier date, 21 March 2019. Is this future income a persuasive enough catalyst for investors to think about Royal Bank of Scotland Group as an investment today? Below, I’m going to look at the latest data and analyze the stock and its dividend property in further detail.
5 questions I ask before picking a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
- Is it the top 25% annual dividend yield payer?
- 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?
- Can it afford to pay the current rate of dividends from its earnings?
- Will it be able to continue to payout at the current rate in the future?
How well does Royal Bank of Scotland Group fit our criteria?
Royal Bank of Scotland Group has a trailing twelve-month payout ratio of 41%, which means that the dividend is covered by earnings. Going forward, analysts expect RBS’s payout to increase to 52% of its earnings. Assuming a constant share price, this equates to a dividend yield of around 5.9%. In addition to this, EPS should increase to £0.16. 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. Unfortunately, it is really too early to view Royal Bank of Scotland Group as a dividend investment. It has only been paying out dividend for the past one year. Generally, the rule of thumb for determining whether a stock is a reliable dividend payer is that it should be consistently paying dividends for the past 10 years or more. Clearly there’s a long road ahead before we can ascertain whether RBS one as a stable dividend player.
Compared to its peers, Royal Bank of Scotland Group produces a yield of 2.6%, which is on the low-side for Banks stocks.
Whilst there are few things you may like about Royal Bank of Scotland Group from a dividend stock perspective, the truth is that overall it probably is not the best choice for a dividend investor. 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 relevant factors you should further research:
- Future Outlook: What are well-informed industry analysts predicting for RBS’s future growth? Take a look at our free research report of analyst consensus for RBS’s outlook.
- Valuation: What is RBS 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 RBS 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.