There is a lot to be liked about Eaton Corporation plc (NYSE:ETN) as an income stock. It has paid dividends over the past 10 years. The company currently pays out a dividend yield of 3.9% to shareholders, making it a relatively attractive dividend stock. Should it have a place in your portfolio? Let’s take a look at Eaton in more detail.
5 questions to ask before buying a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
- Is it the top 25% annual dividend yield payer?
- Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
- Has dividend per share amount increased 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 well does Eaton fit our criteria?
The current trailing twelve-month payout ratio for the stock is 52%, which means that the dividend is covered by earnings. Going forward, analysts expect ETN’s payout to remain around the same level at 48% of its earnings. Assuming a constant share price, this equates to a dividend yield of 4.3%. Moreover, EPS should increase to $5.62.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.
If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. ETN has increased its DPS from $1 to $2.64 in the past 10 years. It has also been paying out dividend consistently during this time, as you’d expect for a company increasing its dividend levels. This is an impressive feat, which makes ETN a true dividend rockstar.
In terms of its peers, Eaton has a yield of 3.9%, which is high for Electrical stocks.
Taking into account the dividend metrics, Eaton 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, 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 fundamental aspects you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for ETN’s future growth? Take a look at our free research report of analyst consensus for ETN’s outlook.
- Valuation: What is ETN 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 ETN 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.