Are You An Income Investor? Don’t Miss Out On Ricardo plc (LON:RCDO)

Ricardo plc (LON:RCDO) has pleased shareholders over the past 10 years, by paying out dividends. The stock currently pays out a dividend yield of 2.8%, and has a market cap of UK£392m. Let’s dig deeper into whether Ricardo should have a place in your portfolio.

View our latest analysis for Ricardo

5 checks you should do on a dividend stock

Whenever I am looking at a potential dividend stock investment, I always check these five metrics:

• 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?

• Does earnings amply cover its dividend payments?

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

LSE:RCDO Historical Dividend Yield October 26th 18

How well does Ricardo fit our criteria?

Ricardo has a trailing twelve-month payout ratio of 58%, which means that the dividend is covered by earnings. In the near future, analysts are predicting lower payout ratio of 36%, leading to a dividend yield of 3.1%. However, EPS should increase to £0.48, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.

When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.

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. In the case of RCDO it has increased its DPS from £0.11 to £0.20 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, Ricardo has a yield of 2.8%, which is high for Professional Services stocks but still below the market’s top dividend payers.

Next Steps:

With these dividend metrics in mind, I definitely rank Ricardo as a strong income stock, and is worth further research for anyone who considers dividends an important part of their portfolio strategy. 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. Below, I’ve compiled three key factors you should further research:

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

2. Valuation: What is RCDO 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 RCDO 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 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.