Should Softcat plc (LON:SCT) Be Part Of Your Dividend Portfolio?
Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. In the past 2 years Softcat plc (LSE:SCT) has returned an average of 24.00% per year to investors in the form of dividend payouts. Does Softcat tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis. View our latest analysis for Softcat
Here’s how I find good dividend stocks
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
Is it paying an annual yield above 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?
Is is able to pay the current rate of dividends from its earnings?
Will it have the ability to keep paying its dividends going forward?
How well does Softcat fit our criteria?
The current trailing twelve-month payout ratio for the stock is 44.20%, which means that the dividend is covered by earnings. Going forward, analysts expect SCT’s payout to remain around the same level at 42.43% of its earnings, which leads to a dividend yield of 2.13%. Furthermore, EPS should increase to £0.22. Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. Unfortunately, it is really too early to view Softcat as a dividend investment. It has only been consistently paying dividends for 2 years, however, standard practice for reliable payers is to look for a 10-year minimum track record. Compared to its peers, Softcat generates a yield of 4.37%, which is high for IT stocks.
Next Steps:
With this in mind, I definitely rank Softcat as a strong dividend stock, and makes it worth further research for anyone who likes steady income generation from their portfolio. 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. I’ve put together three essential factors you should further research:
1. Future Outlook: What are well-informed industry analysts predicting for SCT’s future growth? Take a look at our free research report of analyst consensus for SCT’s outlook.
2. Valuation: What is SCT 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 SCT is currently mispriced by the market.
3. Other 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 pass 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.