Read This Before Buying Sophos Group plc (LON:SOPH) For Its Dividend

Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. In the last few years Sophos Group plc (LON:SOPH) has paid a dividend to shareholders. Today it yields 1.0%. Should it have a place in your portfolio? Let’s take a look at Sophos Group in more detail.

View our latest analysis for Sophos Group

5 questions I ask before picking a dividend stock

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

• Is their annual yield among the top 25% 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 it have the ability to keep paying its dividends going forward?

LSE:SOPH Historical Dividend Yield January 8th 19

Does Sophos Group pass our checks?

The current payout ratio for SOPH is negative, which is not great.

When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.

If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. The reality is that it is too early to consider Sophos Group as a dividend investment. It has only been consistently paying dividends for 3 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.

In terms of its peers, Sophos Group generates a yield of 1.0%, which is on the low-side for Software stocks.

Next Steps:

After digging a little deeper into Sophos Group’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, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. I’ve put together three essential factors you should further research:

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

2. Valuation: What is SOPH 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 SOPH 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.