Something To Consider Before Buying Cerillion PLC (LON:CER) For The 2.9% Dividend
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Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. Cerillion PLC (LON:CER) has recently paid dividends to shareholders, and currently yields 2.9%. Does Cerillion tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
See our latest analysis for Cerillion
5 questions I ask before picking a dividend stock
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
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?
Can it afford to pay the current rate of dividends from its earnings?
Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
Does Cerillion pass our checks?
The current trailing twelve-month payout ratio for the stock is 69%, meaning the dividend is sufficiently covered by earnings. Furthermore, analysts have not forecasted a dividends per share for the future, which makes it hard to determine the yield shareholders should expect, and whether the current payout is sustainable, moving forward.
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 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 Cerillion 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.
In terms of its peers, Cerillion produces a yield of 2.9%, which is high for Software stocks but still below the market’s top dividend payers.
Next Steps:
After digging a little deeper into Cerillion’s yield, it’s easy to see why you should be cautious investing in the company just 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, 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 look at:
Future Outlook: What are well-informed industry analysts predicting for CER’s future growth? Take a look at our free research report of analyst consensus for CER’s outlook.
Valuation: What is CER 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 CER 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.
