Over the past 10 years Southwest Gas Holdings, Inc. (NYSE:SWX) has been paying dividends to shareholders. The stock currently pays out a dividend yield of 2.6%, and has a market cap of US$4.3b. Should it have a place in your portfolio? Let’s take a look at Southwest Gas Holdings in more detail.
5 questions to ask before buying a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Is their annual yield among the top 25% of dividend payers?
- Has it paid dividend every year without dramatically reducing payout in the past?
- Has it increased its dividend per share amount over the past?
- Is is able to pay the current rate of dividends from its earnings?
- Will the company be able to keep paying dividend based on the future earnings growth?
How does Southwest Gas Holdings fare?
Southwest Gas Holdings has a trailing twelve-month payout ratio of 47%, which means that the dividend is covered by earnings. In the near future, analysts are predicting a higher payout ratio of 54% which, assuming the share price stays the same, leads to a dividend yield of 2.8%. However, EPS is forecasted to fall to $3.96 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. SWX has increased its DPS from $0.95 to $2.08 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. These are all positive signs of a great, reliable dividend stock.
Relative to peers, Southwest Gas Holdings has a yield of 2.6%, which is high for Gas Utilities stocks but still below the market’s top dividend payers.
With these dividend metrics in mind, I definitely rank Southwest Gas Holdings as a strong income stock, and is worth further research for anyone who considers dividends an important part of their portfolio strategy. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. I’ve put together three fundamental factors you should further research:
- Future Outlook: What are well-informed industry analysts predicting for SWX’s future growth? Take a look at our free research report of analyst consensus for SWX’s outlook.
- Historical Performance: What has SWX’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.