Have you been keeping an eye on Data#3 Limited’s (ASX:DTL) upcoming dividend of AU$0.036 per share payable on the 29 March 2019? Then you only have 4 days left before the stock starts trading ex-dividend on the 14 March 2019. Investors looking for higher income-generating stocks to add to their portfolio should keep reading, as I take a deeper dive into Data#3’s latest financial data to analyse its dividend attributes.
5 questions to ask before buying a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Does it pay an annual yield higher than 75% 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?
- Is its earnings sufficient to payout dividend at the current rate?
- Will it be able to continue to payout at the current rate in the future?
Does Data#3 pass our checks?
The current trailing twelve-month payout ratio for the stock is 90%, which means that the dividend is covered by earnings. Going forward, analysts expect DTL’s payout to remain around the same level at 88% of its earnings. Assuming a constant share price, this equates to a dividend yield of 6.2%. Furthermore, EPS is forecasted to fall to A$0.11 in the upcoming year.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
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 DTL’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.
Compared to its peers, Data#3 produces a yield of 6.1%, which is high for IT stocks.
Keeping in mind the dividend characteristics above, Data#3 is definitely worth considering for investors looking to build a dedicated income portfolio. 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. I’ve put together three pertinent factors you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for DTL’s future growth? Take a look at our free research report of analyst consensus for DTL’s outlook.
- Valuation: What is DTL 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 DTL 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.