How Does The SimplyBiz Group plc (LON:SBIZ) Fare As A Dividend Stock?

Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. Recently, The SimplyBiz Group plc (LON:SBIZ) has started paying dividends to shareholders. Today it yields 1.3%. Does SimplyBiz Group tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.

View our latest analysis for SimplyBiz Group

5 questions to ask before buying 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?

• Does it consistently pay out dividends without missing a payment of significantly cutting payout?

• Has it increased its dividend per share amount over the past?

• Does earnings amply cover its dividend payments?

• Will it have the ability to keep paying its dividends going forward?

AIM:SBIZ Historical Dividend Yield November 28th 18

Does SimplyBiz Group pass our checks?

The current trailing twelve-month payout ratio for the stock is 63%, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting lower payout ratio of 33%, leading to a dividend yield of 2.7%.

When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.

If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. Unfortunately, it is really too early to view SimplyBiz Group as a dividend investment. It has only been paying out dividend for the past one year. Generally, the rule of thumb for determining whether a stock is a reliable dividend payer is that it should be consistently paying dividends for the past 10 years or more. Clearly there’s a long road ahead before we can ascertain whether SBIZ one as a stable dividend player.

In terms of its peers, SimplyBiz Group generates a yield of 1.3%, which is on the low-side for Professional Services stocks.

Next Steps:

After digging a little deeper into SimplyBiz Group’s yield, it’s easy to see why you should be cautious investing in the company just for the dividend. On the other hand, if you are not strictly just a dividend investor, the stock could still be offering some interesting investment opportunities. 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:

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

2. Valuation: What is SBIZ 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 SBIZ 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.