There is a lot to be liked about Continental Aktiengesellschaft (FRA:CON) as an income stock. It has paid dividends over the past 10 years. The company currently pays out a dividend yield of 3.3% to shareholders, making it a relatively attractive dividend stock. Should it have a place in your portfolio? Let’s take a look at Continental in more detail.
5 questions I ask before picking a dividend stock
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
- 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 the amount of dividend per share grown over the past?
- Does earnings amply cover its dividend payments?
- Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
How well does Continental fit our criteria?
The current trailing twelve-month payout ratio for the stock is 31%, which means that the dividend is covered by earnings. Going forward, analysts expect CON’s payout to remain around the same level at 30% of its earnings, which leads to a dividend yield of 3.5%. In addition to this, EPS is forecasted to fall to €14.47 in the upcoming year.
If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider the cash flow of the business. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
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. CON has increased its DPS from €2 to €4.5 in the past 10 years. During this period it has not missed a payment, as one would expect for a company increasing its dividend. These are all positive signs of a great, reliable dividend stock.
Relative to peers, Continental has a yield of 3.3%, which is on the low-side for Auto Components stocks.
Considering the dividend attributes we analyzed above, Continental is definitely worth keeping an eye on for someone 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 factors you should further research:
- Future Outlook: What are well-informed industry analysts predicting for CON’s future growth? Take a look at our free research report of analyst consensus for CON’s outlook.
- Valuation: What is CON 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 CON 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 email@example.com.