A sizeable part of portfolio returns can be produced by dividend stocks due to their contribution to compounding returns in the long run. Historically, Scorpio Tankers Inc (NYSE:STNG) has been paying a dividend to shareholders. Today it yields 2.2%. Should it have a place in your portfolio? Let’s take a look at Scorpio Tankers in more detail.
5 questions to ask before buying a dividend stock
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
- Is their annual yield among the top 25% of dividend payers?
- Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
- Has it increased its dividend per share amount over the past?
- Can it afford 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 well does Scorpio Tankers fit our criteria?
Scorpio Tankers has a negative payout ratio, meaning that the company is not yet profitable and is paying dividend by dipping into its retained earnings.
If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider 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. The reality is that it is too early to consider Scorpio Tankers as a dividend investment. It has only been consistently paying dividends for 9 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
Compared to its peers, Scorpio Tankers has a yield of 2.2%, which is on the low-side for Oil and Gas stocks.
Now you know to keep in mind the reason why investors should be careful investing in Scorpio Tankers 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, 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 aspects you should further research:
- Future Outlook: What are well-informed industry analysts predicting for STNG’s future growth? Take a look at our free research report of analyst consensus for STNG’s outlook.
- Valuation: What is STNG 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 STNG 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.