Yahoo Finance Is Dignity plc (LON:DTY) A Great Dividend Stock?
Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. Historically, Dignity plc (LON:DTY) has paid dividends to shareholders, and these days it yields 3.5%. Should it have a place in your portfolio? Let’s take a look at Dignity in more detail.
Check out our latest analysis for Dignity
5 questions I ask before picking a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
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 dividend per share risen in the past couple of years?
Can it afford to pay the current rate of dividends from its earnings?
Will the company be able to keep paying dividend based on the future earnings growth?
How well does Dignity fit our criteria?
The current trailing twelve-month payout ratio for the stock is 23%, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting a higher payout ratio of 34% which, assuming the share price stays the same, leads to a dividend yield of 3.4%. However, EPS is forecasted to fall to £0.74 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. Although DTY’s per share payments have increased in the past 10 years, it has not been a completely smooth ride. Shareholders would have seen a few years of reduced payments in this time.
Compared to its peers, Dignity generates a yield of 3.5%, which is high for Consumer Services stocks but still below the market’s top dividend payers.
Next Steps:
With these dividend metrics in mind, I definitely rank Dignity as a strong income stock, and is worth further research for anyone who considers dividends an important part of their portfolio strategy. 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 pertinent factors you should further examine:
Future Outlook: What are well-informed industry analysts predicting for DTY’s future growth? Take a look at our free research report of analyst consensus for DTY’s outlook.
Valuation: What is DTY 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 DTY 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.
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.
