Is SEEK Limited (ASX:SEK) A Top Dividend Stock?

Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. Historically, SEEK Limited (ASX:SEK) has paid a dividend to shareholders. It currently yields 2.7%. Should it have a place in your portfolio? Let’s take a look at SEEK in more detail.

See our latest analysis for SEEK

5 questions I ask before picking a dividend stock

When researching a dividend stock, I always follow the following screening criteria:

• Is it the top 25% annual dividend yield payer?

• Has it paid dividend every year without dramatically reducing payout in the past?

• Has the amount of dividend per share grown over the past?

• Does earnings amply cover its dividend payments?

• Will the company be able to keep paying dividend based on the future earnings growth?

ASX:SEK Historical Dividend Yield January 8th 19

How does SEEK fare?

SEK currently pays out twice what it is earning, according to its trailing twelve-month data, meaning that the dividend is predominantly funded by retained earnings. However, going forward, analysts expect SEK’s payout to fall into a more sustainable range of 74% of its earnings. Assuming a constant share price, this equates to a dividend yield of 3.1%. Furthermore, EPS should increase to A$0.55, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.

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.

Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. Whilst its per-share payments have increased during the past 10 years, there has been some hiccups. Shareholders would have seen a few years of reduced payments in this time.

In terms of its peers, SEEK produces a yield of 2.7%, which is on the low-side for Professional Services stocks.

Next Steps:

Now you know to keep in mind the reason why investors should be careful investing in SEEK 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. There are three fundamental factors you should look at:

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

2. Valuation: What is SEK 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 SEK 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.