Yahoo Finance Should Direct Line Insurance Group plc (LON:DLG) Be Part Of Your Dividend Portfolio?
Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. In the past 5 years Direct Line Insurance Group plc (LSE:DLG) has returned an average of 7.00% per year to investors in the form of dividend payouts. Does Direct Line Insurance Group tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis. View our latest analysis for Direct Line Insurance Group
5 questions to ask before buying 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 consistently paid a stable dividend without missing a payment or drastically cutting payout?
Has it increased its dividend per share amount over the past?
Is its earnings sufficient to payout dividend at the current rate?
Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
How does Direct Line Insurance Group fare?
The current trailing twelve-month payout ratio for the stock is 64.21%, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting a higher payout ratio of 84.72%, leading to a dividend yield of 7.92%. However, EPS is forecasted to fall to £0.32 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income. 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. The reality is that it is too early to consider Direct Line Insurance Group as a dividend investment. It has only been consistently paying dividends for 5 years, however, standard practice for reliable payers is to look for a 10-year minimum track record. Relative to peers, Direct Line Insurance Group has a yield of 9.89%, which is high for Insurance stocks.
Next Steps:
Taking into account the dividend metrics, Direct Line Insurance Group ticks most of the boxes as a strong dividend investment, putting it in my list of top dividend payers. 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 DLG’s future growth? Take a look at our free research report of analyst consensus for DLG’s outlook.
Valuation: What is DLG 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 DLG 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 pass 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.
