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, Abcam plc (LON:ABC) has paid a dividend to shareholders. It currently yields 1.0%. Let’s dig deeper into whether Abcam should have a place in your portfolio.
5 checks you should use to assess a dividend stock
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
- Is it paying an annual yield above 75% of dividend payers?
- Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
- Has the amount of dividend per share grown over the past?
- Is is able 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?
How does Abcam fare?
The current trailing twelve-month payout ratio for the stock is 43%, which means that the dividend is covered by earnings. In the near future, analysts are predicting lower payout ratio of 38% which, assuming the share price stays the same, leads to a dividend yield of around 1.2%. However, EPS should increase to £0.30, 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. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.
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 Abcam 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.
Relative to peers, Abcam generates a yield of 1.0%, which is on the low-side for Biotechs stocks.
Now you know to keep in mind the reason why investors should be careful investing in Abcam 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. I’ve put together three fundamental factors you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for ABC’s future growth? Take a look at our free research report of analyst consensus for ABC’s outlook.
- Valuation: What is ABC 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 ABC 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.
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 email@example.com. 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.