Is The Citadel Group Limited (ASX:CGL) An Attractive Dividend Stock?

A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. In the last few years The Citadel Group Limited (ASX:CGL) has paid a dividend to shareholders. Today it yields 1.9%. Does Citadel Group tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.

See our latest analysis for Citadel Group

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 the top 25% annual dividend yield payer?

• Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?

• Has dividend per share amount increased over the past?

• Is its earnings sufficient to payout dividend at the current rate?

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

ASX:CGL Historical Dividend Yield January 8th 19

How well does Citadel Group fit our criteria?

The current trailing twelve-month payout ratio for the stock is 43%, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect CGL’s payout to remain around the same level at 41% of its earnings. Assuming a constant share price, this equates to a dividend yield of around 2.5%. Furthermore, EPS should increase to A$0.40.

When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.

If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. The reality is that it is too early to consider Citadel Group as a dividend investment. It has only been consistently paying dividends for 4 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.

Relative to peers, Citadel Group generates a yield of 1.9%, which is on the low-side for IT stocks.

Next Steps:

Now you know to keep in mind the reason why investors should be careful investing in Citadel Group 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 important factors you should further research:

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

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

3. 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.