Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. Historically, Fisher & Paykel Healthcare Corporation Limited (NZSE:FPH) has paid dividends to shareholders, and these days it yields 1.6%. Does Fisher & Paykel Healthcare tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
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?
- Does it consistently pay out dividends without missing a payment of significantly cutting payout?
- Has dividend per share amount increased 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 well does Fisher & Paykel Healthcare fit our criteria?
Fisher & Paykel Healthcare has a trailing twelve-month payout ratio of 64%, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect FPH’s payout to remain around the same level at 69% of its earnings, which leads to a dividend yield of 2.4%. Moreover, EPS should increase to NZ$0.37.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.
If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. Dividend payments from Fisher & Paykel Healthcare have been volatile in the past 10 years, with some years experiencing significant drops of over 25%. These characteristics do not bode well for income investors seeking reliable stream of dividends.
Relative to peers, Fisher & Paykel Healthcare generates a yield of 1.6%, which is high for Medical Equipment stocks but still below the low risk savings rate.
After digging a little deeper into Fisher & Paykel Healthcare’s yield, it’s easy to see why you should be cautious investing in the company just 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. There are three key aspects you should look at:
- Future Outlook: What are well-informed industry analysts predicting for FPH’s future growth? Take a look at our free research report of analyst consensus for FPH’s outlook.
- Valuation: What is FPH 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 FPH 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 email@example.com.