Yahoo Finance Should Woolworths Group Limited (ASX:WOW) Be Part Of Your Portfolio?
A sizeable part of portfolio returns can be produced by dividend stocks due to their contribution to compounding returns in the long run. Historically, Woolworths Group Limited (ASX:WOW) has been paying a dividend to shareholders. Today it yields 3.3%. Let’s dig deeper into whether Woolworths Group should have a place in your portfolio.
View our latest analysis for Woolworths Group
5 checks you should do on a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
Is their annual yield among the top 25% of dividend payers?
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 is able to pay the current rate of dividends from its earnings?
Will it have the ability to keep paying its dividends going forward?
Does Woolworths Group pass our checks?
The company currently pays out 75% of its earnings as a dividend, according to its trailing twelve-month data, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect WOW’s payout to remain around the same level at 74% of its earnings, which leads to a dividend yield of 3.8%. Furthermore, EPS should increase to A$1.46.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.
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. Not only have dividend payouts from Woolworths Group fallen over the past 10 years, it has also been highly volatile during this time, with drops of over 25% in some years. This means that dividend hunters should probably steer clear of the stock, at least for now until the track record improves.
Compared to its peers, Woolworths Group produces a yield of 3.3%, which is on the low-side for Consumer Retailing stocks.
Next Steps:
If Woolworths Group is in your portfolio for cash-generating reasons, there may be better alternatives out there. 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. Below, I’ve compiled three pertinent aspects you should further research:
Future Outlook: What are well-informed industry analysts predicting for WOW’s future growth? Take a look at our free research report of analyst consensus for WOW’s outlook.
Valuation: What is WOW 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 WOW 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.
