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Should Hiscox Ltd (LON:HSX) Be Part Of Your Income Portfolio?

Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. Historically, Hiscox Ltd (LON:HSX) has been paying a dividend to shareholders. Today it yields 1.8%. Should it have a place in your portfolio? Let’s take a look at Hiscox in more detail.

Check out our latest analysis for Hiscox

Here’s how I find good dividend stocks

When researching a dividend stock, I always follow the following screening criteria:

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

  • Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?

  • Has dividend per share risen in the past couple of years?

  • Can it afford to pay the current rate of dividends from its earnings?

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

LSE:HSX Historical Dividend Yield December 11th 18
LSE:HSX Historical Dividend Yield December 11th 18

How does Hiscox fare?

The current trailing twelve-month payout ratio for HSX is 171%, meaning the dividend is not sufficiently covered by its earnings. In the near future, analysts are predicting a more sensible payout ratio of 35%, which, assuming the share price stays the same, leads to a dividend yield of 2.2%. In addition to this, EPS should increase to $0.92, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.

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If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider the cash flow of the business. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.

If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. Whilst its per-share payments have increased during the past 10 years, there has been some hiccups. Investors have seen reductions in the dividend per share in the past, although, it has picked up again.

Compared to its peers, Hiscox produces a yield of 1.8%, which is on the low-side for Insurance stocks.

Next Steps:

After digging a little deeper into Hiscox’s yield, it’s easy to see why you should be cautious investing in the company just for the dividend. 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. I’ve put together three essential aspects you should look at:

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

  2. Valuation: What is HSX 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 HSX 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.