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Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. Recently, Boise Cascade Company (NYSE:BCC) has started paying dividends to shareholders. Today it yields 1.2%. Let’s dig deeper into whether Boise Cascade should have a place in your portfolio.
5 checks you should use to assess a dividend stock
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
- Is it paying an annual yield above 75% of dividend payers?
- Does it consistently pay out dividends without missing a payment of significantly cutting payout?
- Has dividend per share risen in the past couple of years?
- Is its earnings sufficient to payout dividend at the current rate?
- Will the company be able to keep paying dividend based on the future earnings growth?
Does Boise Cascade pass our checks?
The current trailing twelve-month payout ratio for the stock is 9.7%, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect BCC’s payout to increase to 12% of its earnings. Assuming a constant share price, this equates to a dividend yield of 1.3%. However, EPS is forecasted to fall to $2.36 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.
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.
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. Unfortunately, it is really too early to view Boise Cascade as a dividend investment. It has only been paying out dividend for the past one year. Generally, the rule of thumb for determining whether a stock is a reliable dividend payer is that it should be consistently paying dividends for the past 10 years or more. Clearly there’s a long road ahead before we can ascertain whether BCC one as a stable dividend player.
Relative to peers, Boise Cascade has a yield of 1.2%, which is on the low-side for Forestry stocks.
Now you know to keep in mind the reason why investors should be careful investing in Boise Cascade for the dividend. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. 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 essential aspects you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for BCC’s future growth? Take a look at our free research report of analyst consensus for BCC’s outlook.
- Valuation: What is BCC 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 BCC 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.
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 email@example.com. 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. On rare occasion, data errors may occur. Thank you for reading.