A sizeable part of portfolio returns can be produced by dividend stocks due to their contribution to compounding returns in the long run. SSP Group plc (LON:SSPG) has paid a dividend to shareholders in the last few years. It currently yields 1.6%. Let’s dig deeper into whether SSP Group should have a place in your portfolio.
5 checks you should do on a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
- Is it the top 25% annual dividend yield payer?
- 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?
- Will it have the ability to keep paying its dividends going forward?
How well does SSP Group fit our criteria?
The company currently pays out 41% of its earnings as a dividend, according to its trailing twelve-month data, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect SSPG’s payout to remain around the same level at 41% of its earnings. Assuming a constant share price, this equates to a dividend yield of 1.9%. Moreover, EPS should increase to £0.28.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
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 SSP Group as a dividend investment. It has only been consistently paying dividends for 4 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
Compared to its peers, SSP Group has a yield of 1.6%, which is on the low-side for Hospitality stocks.
Now you know to keep in mind the reason why investors should be careful investing in SSP Group 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 urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. There are three essential factors you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for SSPG’s future growth? Take a look at our free research report of analyst consensus for SSPG’s outlook.
- Valuation: What is SSPG 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 SSPG 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.
To help readers see past 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. For errors that warrant correction please contact the editor at firstname.lastname@example.org.