Is Essentra plc (LON:ESNT) A Smart Choice For Dividend Investors?

Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. In the past 10 years Essentra plc (LON:ESNT) has returned an average of 3.00% per year to investors in the form of dividend payouts. Let’s dig deeper into whether Essentra should have a place in your portfolio. See our latest analysis for Essentra

Here’s how I find good dividend stocks

When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:

• Does it pay an annual yield higher than 75% of dividend payers?

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

• Has dividend per share amount increased over the past?

• Does earnings amply cover its dividend payments?

• Will the company be able to keep paying dividend based on the future earnings growth?

LSE:ESNT Historical Dividend Yield June 22nd 18

Does Essentra pass our checks?

Essentra has a trailing twelve-month payout ratio of more than 200% of earnings, meaning that the dividend is predominantly funded by retained earnings. However, going forward, analysts expect ESNT’s payout to fall into a more sustainable range of 65.63% of its earnings, which leads to a dividend yield of 4.33%. In addition to this, EPS should increase to £0.18, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.

If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. In the case of ESNT it has increased its DPS from £0.076 to £0.21 in the past 10 years. It has also been paying out dividend consistently during this time, as you’d expect for a company increasing its dividend levels. These are all positive signs of a great, reliable dividend stock.

Relative to peers, Essentra generates a yield of 4.30%, which is high for Chemicals stocks but still below the market’s top dividend payers.

Next Steps:

Considering the dividend attributes we analyzed above, Essentra is definitely worth keeping an eye on for someone looking to build a dedicated income portfolio. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. There are three essential factors you should further research:

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

2. Valuation: What is ESNT 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 ESNT 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.

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.