Zooming in on FRA:STM’s 1.4% Dividend Yield
Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. Stabilus SA (FRA:STM) has recently paid dividends to shareholders, and currently yields 1.4%. Should it have a place in your portfolio? Let’s take a look at Stabilus in more detail.
View our latest analysis for Stabilus
How I analyze 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 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?
Will the company be able to keep paying dividend based on the future earnings growth?
How well does Stabilus fit our criteria?
The company currently pays out 24% 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 STM’s payout to remain around the same level at 24% of its earnings, which leads to a dividend yield of around 1.9%. Moreover, EPS should increase to €3.94.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. 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. Unfortunately, it is really too early to view Stabilus 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, Stabilus has a yield of 1.4%, which is on the low-side for Machinery stocks.
Next Steps:
After digging a little deeper into Stabilus’s yield, it’s easy to see why you should be cautious investing in the company just for the dividend. On the other hand, if you are not strictly just a dividend investor, the stock could still be offering some interesting investment opportunities. 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 essential factors you should look at:
Future Outlook: What are well-informed industry analysts predicting for STM’s future growth? Take a look at our free research report of analyst consensus for STM’s outlook.
Valuation: What is STM 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 STM 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 editorial-team@simplywallst.com.
