Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. Historically, QinetiQ Group plc (LON:QQ.) has paid dividends to shareholders, and these days it yields 2.3%. Does QinetiQ Group tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
5 checks you should use to assess a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
- Is its annual yield among the top 25% of dividend-paying companies?
- Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
- Has dividend per share amount increased over the past?
- Does earnings amply cover its dividend payments?
- Will it have the ability to keep paying its dividends going forward?
How does QinetiQ Group fare?
The current trailing twelve-month payout ratio for the stock is 26%, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect QQ.’s payout to increase to 39% of its earnings, which leads to a dividend yield of 2.6%. However, EPS is forecasted to fall to £0.17 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. 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. Although QQ.’s per share payments have increased in the past 10 years, it has not been a completely smooth ride. Shareholders would have seen a few years of reduced payments in this time.
In terms of its peers, QinetiQ Group produces a yield of 2.3%, which is on the low-side for Aerospace & Defense stocks.
Considering the dividend attributes we analyzed above, QinetiQ 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, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. I’ve put together three important factors you should look at:
- Future Outlook: What are well-informed industry analysts predicting for QQ.’s future growth? Take a look at our free research report of analyst consensus for QQ.’s outlook.
- Valuation: What is QQ. 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 QQ. is currently mispriced by the market.
- 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 firstname.lastname@example.org.