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Should Elegant Hotels Group Plc (LON:EHG) Be Part Of Your Portfolio?

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Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. Elegant Hotels Group Plc (LON:EHG) has paid a dividend to shareholders in the last few years. It currently yields 5.4%. Does Elegant Hotels Group tick all the boxes of a great dividend stock? Below, I'll take you through my analysis.

See our latest analysis for Elegant Hotels Group

5 questions to ask before buying a dividend stock

If you are a dividend investor, you should always assess these five key metrics:

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  • 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 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?

AIM:EHG Historical Dividend Yield, April 1st 2019
AIM:EHG Historical Dividend Yield, April 1st 2019

Does Elegant Hotels Group pass our checks?

The company currently pays out 49% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is covered by earnings. However, going forward, analysts expect EHG's payout to fall to 37% of its earnings. Assuming a constant share price, this equates to a dividend yield of around 5.5%. However, EPS should increase to $0.13, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.

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.

Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. The reality is that it is too early to consider Elegant Hotels Group as a dividend investment. It has only been consistently paying dividends for 4 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.

In terms of its peers, Elegant Hotels Group generates a yield of 5.4%, which is high for Hospitality stocks.

Next Steps:

Considering the dividend attributes we analyzed above, Elegant Hotels Group is definitely worth keeping an eye on for someone looking to build a dedicated income portfolio. 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. I've put together three important aspects you should further research:

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

  2. Valuation: What is EHG 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 EHG is currently mispriced by the market.

  3. Other 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 editorial-team@simplywallst.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.