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A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. Historically, Daktronics, Inc. (NASDAQ:DAKT) has been paying a dividend to shareholders. Today it yields 3.6%. Does Daktronics tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
5 checks you should use to assess a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five 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?
Will it be able to continue to payout at the current rate in the future?
Does Daktronics pass our checks?
DAKT currently pays out twice what it is earning, according to its trailing twelve-month data, which suggests that the dividend is not well-covered by earnings by any means. Furthermore, analysts have not forecasted a dividends per share for the future, which makes it hard to determine the yield shareholders should expect, and whether the current payout is sustainable, moving forward.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. Although DAKT’s per share payments have increased in the past 10 years, it has not been a completely smooth ride. Investors have seen reductions in the dividend per share in the past, although, it has picked up again.
Relative to peers, Daktronics has a yield of 3.6%, which is high for Electronic stocks but still below the market’s top dividend payers.
After digging a little deeper into Daktronics’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 recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. I’ve put together three pertinent aspects you should further examine:
Future Outlook: What are well-informed industry analysts predicting for DAKT’s future growth? Take a look at our free research report of analyst consensus for DAKT’s outlook.
Valuation: What is DAKT 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 DAKT 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 firstname.lastname@example.org.