Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. Historically, Transurban Group (ASX:TCL) has paid a dividend to shareholders. It currently yields 4.7%. Let’s dig deeper into whether Transurban Group should have a place in your portfolio.
How I analyze a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
- Does it pay an annual yield higher than 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?
- Is its earnings sufficient to payout dividend at the current rate?
- Will it have the ability to keep paying its dividends going forward?
Does Transurban Group pass our checks?
Transurban Group has a trailing twelve-month payout ratio of more than 200% of earnings, meaning that the dividend is predominantly funded by retained earnings. Furthermore, analysts are forecasting the payout ratio to remain at this high level going forward, leading to a future of uncertainty around the stability of TCL’s dividend income.
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. Not only have dividend payouts from Transurban Group 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.
Relative to peers, Transurban Group has a yield of 4.7%, which is high for Infrastructure stocks but still below the market’s top dividend payers.
After digging a little deeper into Transurban 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, 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 pertinent factors you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for TCL’s future growth? Take a look at our free research report of analyst consensus for TCL’s outlook.
- Valuation: What is TCL 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 TCL 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.