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 last few years Vestas Wind Systems A/S (CPH:VWS) has paid a dividend to shareholders. Today it yields 1.9%. Let’s dig deeper into whether Vestas Wind Systems should have a place in your portfolio.
5 checks you should use to assess a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
- Is it paying an annual yield above 75% of dividend payers?
- Does it consistently pay out dividends without missing a payment of significantly cutting payout?
- Has it increased its dividend per share amount over the past?
- Is its earnings sufficient to payout dividend at the current rate?
- Will the company be able to keep paying dividend based on the future earnings growth?
How does Vestas Wind Systems fare?
Vestas Wind Systems has a trailing twelve-month payout ratio of 33%, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect VWS’s payout to remain around the same level at 31% of its earnings. Assuming a constant share price, this equates to a dividend yield of around 2.0%. Moreover, EPS should increase to €3.87.
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’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 Vestas Wind Systems 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.
In terms of its peers, Vestas Wind Systems generates a yield of 1.9%, which is on the low-side for Electrical stocks.
If you are building an income portfolio, then Vestas Wind Systems is a complicated choice since it has some positive aspects as well as negative ones. However, if you are not strictly just a dividend investor, the stock could still offer some interesting investment opportunities. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. There are three relevant aspects you should look at:
- Future Outlook: What are well-informed industry analysts predicting for VWS’s future growth? Take a look at our free research report of analyst consensus for VWS’s outlook.
- Valuation: What is VWS 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 VWS 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 email@example.com.