A sizeable part of portfolio returns can be produced by dividend stocks due to their contribution to compounding returns in the long run. Historically, UCB SA (EBR:UCB) has paid a dividend to shareholders. It currently yields 1.6%. Does UCB tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
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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 their annual yield among the top 25% of dividend payers?
- Does it consistently pay out dividends without missing a payment of significantly cutting payout?
- Has dividend per share risen in the past couple of years?
- Does earnings amply cover its dividend payments?
- Will it be able to continue to payout at the current rate in the future?
How well does UCB fit our criteria?
The company currently pays out 25% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is covered by earnings. Going forward, analysts expect UCB’s payout to remain around the same level at 26% of its earnings. Assuming a constant share price, this equates to a dividend yield of 1.8%. In addition to this, EPS is forecasted to fall to €4.2 in the upcoming year.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. In the case of UCB it has increased its DPS from €0.92 to €1.18 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 UCB a true dividend rockstar.
In terms of its peers, UCB produces a yield of 1.6%, which is on the low-side for Pharmaceuticals stocks.
Keeping in mind the dividend characteristics above, UCB is definitely worth considering for investors looking to build a dedicated income 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. I’ve put together three essential aspects you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for UCB’s future growth? Take a look at our free research report of analyst consensus for UCB’s outlook.
- Valuation: What is UCB 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 UCB 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 firstname.lastname@example.org.