Should Income Investors Buy Transurban Group (ASX:TCL) Before Its Ex-Dividend?

Shares of Transurban Group (ASX:TCL) will begin trading ex-dividend in 2 days. To qualify for the dividend check of AU$0.28 per share, investors must have owned the shares prior to 28 June 2018, which is the last day the company’s management will finalize their list of shareholders to which they will send dividend payments. Is this future income a persuasive enough catalyst for investors to think about Transurban Group as an investment today? Below, I’m going to look at the latest data and analyze the stock and its dividend property in further detail. See our latest analysis for Transurban Group

5 checks you should do on 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?

• Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?

• Has dividend per share amount increased over the past?

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

• Will it be able to continue to payout at the current rate in the future?

ASX:TCL Historical Dividend Yield June 25th 18

How does Transurban Group fare?

The company currently pays out more than double of its earnings as a dividend, according to its trailing trailing twelve-month data, meaning that the dividend is predominantly funded by retained earnings. Furthermore, analysts are forecasting the payout ratio to remain at this high level going forward, leading to a future of uncertainty around the stability of TCL’s dividend income.

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. Dividend payments from Transurban Group 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.

In terms of its peers, Transurban Group generates a yield of 4.59%, which is high for Infrastructure stocks but still below the market’s top dividend payers.

Next Steps:

Now you know to keep in mind the reason why investors should be careful investing in Transurban 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, 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 important aspects you should further examine:

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

2. Valuation: What is TCL 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 TCL 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 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.