Is Tomra Systems ASA (OB:TOM) An Attractive Dividend Stock?
A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. Historically, Tomra Systems ASA (OB:TOM) has paid dividends to shareholders, and these days it yields 1.2%. Let’s dig deeper into whether Tomra Systems should have a place in your portfolio.
Check out our latest analysis for Tomra Systems
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 the top 25% annual dividend yield payer?
Does it consistently pay out dividends without missing a payment of significantly 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?
Does Tomra Systems pass our checks?
The current trailing twelve-month payout ratio for the stock is 52%, which means that the dividend is covered by earnings. Going forward, analysts expect TOM’s payout to remain around the same level at 50% of its earnings. Assuming a constant share price, this equates to a dividend yield of around 1.5%. Furthermore, EPS should increase to NOK5.63.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. 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. Not only have dividend payouts from Tomra Systems 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.
In terms of its peers, Tomra Systems produces a yield of 1.2%, which is on the low-side for Commercial Services stocks.
Next Steps:
After digging a little deeper into Tomra Systems’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. There are three important aspects you should further research:
Future Outlook: What are well-informed industry analysts predicting for TOM’s future growth? Take a look at our free research report of analyst consensus for TOM’s outlook.
Valuation: What is TOM 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 TOM 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 editorial-team@simplywallst.com.