Should Adelaide Brighton Limited (ASX:ABC) Be Part Of Your Portfolio?

A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. Over the past 10 years, Adelaide Brighton Limited (ASX:ABC) has returned an average of 5.00% per year to shareholders in terms of dividend yield. Does Adelaide Brighton tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis. Check out our latest analysis for Adelaide Brighton

5 questions I ask before picking a dividend stock

Whenever I am looking at a potential dividend stock investment, I always check these five metrics:

• Is it paying an annual yield above 75% of dividend payers?

• Has it paid dividend every year without dramatically reducing payout in the past?

• Has dividend per share amount increased over the past?

• Can it afford to pay the current rate of dividends from its earnings?

• Will it have the ability to keep paying its dividends going forward?

ASX:ABC Historical Dividend Yield Jun 11th 18

Does Adelaide Brighton pass our checks?

Adelaide Brighton has a trailing twelve-month payout ratio of 73.22%, which means that the dividend is covered by earnings. In the near future, analysts are predicting a higher payout ratio of 83.12%, leading to a dividend yield of around 4.10%. Moreover, EPS should increase to A$0.33. The higher payout forecasted, along with higher earnings, should lead to greater dividend income for investors moving forward. 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 ABC’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, Adelaide Brighton produces a yield of 3.64%, which is on the low-side for Basic Materials stocks.

Next Steps:

With these dividend metrics in mind, I definitely rank Adelaide Brighton as a strong income stock, and is worth further research for anyone who considers dividends an important part of their portfolio strategy. 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. There are three key factors you should look at:

1. Future Outlook: What are well-informed industry analysts predicting for ABC’s future growth? Take a look at our free research report of analyst consensus for ABC’s outlook.

2. Valuation: What is ABC 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 ABC is currently mispriced by the market.

3. Other 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 pass 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.