Does Technology One Limited (ASX:TNE) Have A Place In Your Portfolio?
Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. Historically, Technology One Limited (ASX:TNE) has been paying a dividend to shareholders. Today it yields 1.9%. Should it have a place in your portfolio? Let’s take a look at Technology One in more detail.
Check out our latest analysis for Technology One
5 checks you should do on a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
Is its annual yield among the top 25% of dividend-paying companies?
Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
Has dividend per share risen in the past couple of years?
Is its earnings sufficient to payout dividend at the current rate?
Will the company be able to keep paying dividend based on the future earnings growth?
How well does Technology One fit our criteria?
Technology One has a trailing twelve-month payout ratio of 60%, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect TNE’s payout to increase to 66% of its earnings, which leads to a dividend yield of around 2.3%. Furthermore, EPS should increase to A$0.17. The higher payout forecasted, along with higher earnings, should lead to greater dividend income for investors moving forward.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. Although TNE’s per share payments have increased in the past 10 years, it has not been a completely smooth ride. Shareholders would have seen a few years of reduced payments in this time.
Compared to its peers, Technology One produces a yield of 1.9%, which is high for Software stocks but still below the low risk savings rate.
Next Steps:
Whilst there are few things you may like about Technology One from a dividend stock perspective, the truth is that overall it probably is not the best choice for a dividend investor. However, if you are not strictly just a dividend investor, the stock could still offer some interesting investment opportunities. 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 relevant factors you should further examine:
Future Outlook: What are well-informed industry analysts predicting for TNE’s future growth? Take a look at our free research report of analyst consensus for TNE’s outlook.
Valuation: What is TNE 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 TNE 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 editorial-team@simplywallst.com.