Is S&U plc (LON:SUS) A Smart Pick For Income Investors?
There is a lot to be liked about S&U plc (LON:SUS) as an income stock. It has paid dividends over the past 10 years. The stock currently pays out a dividend yield of 5.1%, and has a market cap of UK£255m. Does S&U tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
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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:
Does it pay an annual yield higher than 75% of dividend payers?
Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
Has it increased its dividend per share amount 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?
How does S&U fare?
S&U has a trailing twelve-month payout ratio of 49%, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting a payout ratio of 50% which, assuming the share price stays the same, leads to a dividend yield of around 6.4%. In addition to this, EPS should increase to £2.43.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
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. In the case of SUS it has increased its DPS from £0.32 to £1.05 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 SUS a true dividend rockstar.
In terms of its peers, S&U produces a yield of 5.1%, which is high for Consumer Finance stocks but still below the market’s top dividend payers.
Next Steps:
With this in mind, I definitely rank S&U 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, 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. Below, I’ve compiled three key factors you should further examine:
Future Outlook: What are well-informed industry analysts predicting for SUS’s future growth? Take a look at our free research report of analyst consensus for SUS’s outlook.
Valuation: What is SUS 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 SUS 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 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 editorial-team@simplywallst.com.
