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A sizeable part of portfolio returns can be produced by dividend stocks due to their contribution to compounding returns in the long run. In the past 10 years Transmetro Corporation Limited (ASX:TCO) has returned an average of 5.00% per year to investors in the form of dividend payouts. Let’s dig deeper into whether Transmetro should have a place in your portfolio. See our latest analysis for Transmetro
5 checks you should do on a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
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?
Will it have the ability to keep paying its dividends going forward?
Does Transmetro pass our checks?
Transmetro has a trailing twelve-month payout ratio of 22.26%, which means that the dividend is 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 there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. In the case of TCO it has increased its DPS from A$0.030 to A$0.050 in the past 10 years. During this period it has not missed a payment, as one would expect for a company increasing its dividend. This is an impressive feat, which makes TCO a true dividend rockstar.
In terms of its peers, Transmetro generates a yield of 4.63%, which is high for Hospitality stocks but still below the market’s top dividend payers.
Taking into account the dividend metrics, Transmetro ticks most of the boxes as a strong dividend investment, putting it in my list of top dividend payers. 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 TCO’s future growth? Take a look at our free research report of analyst consensus for TCO’s outlook.
Valuation: What is TCO 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 TCO is currently mispriced by the market.
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.