Investors who want to cash in on Grainger plc’s (LON:GRI) upcoming dividend of UK£0.035 per share have only 3 days left to buy the shares before its ex-dividend date, 13 December 2018, in time for dividends payable on the 11 February 2019. Should you diversify into Grainger and boost your portfolio income stream? Well, keep on reading because today, I’m going to look at the latest data and analyze the stock and its dividend property in further detail.
5 questions to ask before buying a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
- 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 risen in the past couple of years?
- Is is able to pay the current rate of dividends from its earnings?
- Will it be able to continue to payout at the current rate in the future?
How does Grainger fare?
Grainger has a trailing twelve-month payout ratio of 25%, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect GRI’s payout to increase to 51% of its earnings, which leads to a dividend yield of around 3.3%. However, EPS is forecasted to fall to £0.18 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.
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. Not only have dividend payouts from Grainger fallen over the past 10 years, it has also been highly volatile during this time, with drops of over 25% in some years. These characteristics do not bode well for income investors seeking reliable stream of dividends.
In terms of its peers, Grainger produces a yield of 2.4%, which is on the low-side for Real Estate stocks.
If you are building an income portfolio, then Grainger is a complicated choice since it has some positive aspects as well as negative ones. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. 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. Below, I’ve compiled three fundamental factors you should look at:
- Future Outlook: What are well-informed industry analysts predicting for GRI’s future growth? Take a look at our free research report of analyst consensus for GRI’s outlook.
- Valuation: What is GRI 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 GRI is currently mispriced by the market.
- 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 email@example.com.