Yahoo Finance Should You Buy Caltex Australia Limited (ASX:CTX) For Its Dividend?
A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. Historically, Caltex Australia Limited (ASX:CTX) has paid a dividend to shareholders. It currently yields 4.5%. Does Caltex Australia tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
See our latest analysis for Caltex Australia
Here’s how I find good dividend stocks
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
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 the amount of dividend per share grown over the past?
Does earnings amply cover its dividend payments?
Will it be able to continue to payout at the current rate in the future?
Does Caltex Australia pass our checks?
Caltex Australia has a trailing twelve-month payout ratio of 42%, which means that the dividend is covered by earnings. Going forward, analysts expect CTX’s payout to increase to 59% of its earnings. Assuming a constant share price, this equates to a dividend yield of around 5.1%. However, EPS is forecasted to fall to A$2.17 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.
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. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. Whilst its per-share payments have increased during the past 10 years, there has been some hiccups. Investors have seen reductions in the dividend per share in the past, although, it has picked up again.
Compared to its peers, Caltex Australia generates a yield of 4.5%, which is high for Oil and Gas stocks but still below the market’s top dividend payers.
Next Steps:
Taking into account the dividend metrics, Caltex Australia ticks most of the boxes as a strong dividend investment, putting it in my list of top dividend payers. 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 key factors you should further examine:
Future Outlook: What are well-informed industry analysts predicting for CTX’s future growth? Take a look at our free research report of analyst consensus for CTX’s outlook.
Valuation: What is CTX 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 CTX is currently mispriced by the market.
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 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 editorial-team@simplywallst.com.
