Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. Universal Coal Plc (ASX:UNV) has returned an average dividend yield of 8.00% annually to shareholders. Does Universal Coal tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis. Check out our latest analysis for Universal Coal
5 checks you should do on a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Is it paying an annual yield above 75% of dividend payers?
- Has it paid dividend every year without dramatically reducing payout in the past?
- Has the amount of dividend per share grown 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?
How well does Universal Coal fit our criteria?
The current trailing twelve-month payout ratio for the stock is 69.21%, meaning the dividend is sufficiently covered by earnings. However, going forward, analysts expect UNV’s payout to fall to 29.22% of its earnings, which leads to a dividend yield of around 10.71%. However, EPS should increase to A$0.06, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment. If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. The reality is that it is too early to consider Universal Coal as a dividend investment. It has only been paying out dividend for the past one year. Generally, the rule of thumb for determining whether a stock is a reliable dividend payer is that it should be consistently paying dividends for the past 10 years or more. Clearly there’s a long road ahead before we can ascertain whether UNV one as a stable dividend player. Compared to its peers, Universal Coal produces a yield of 8.33%, which is high for Oil and Gas stocks.
With these dividend metrics in mind, I definitely rank Universal Coal 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, 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 essential factors you should further research:
- Future Outlook: What are well-informed industry analysts predicting for UNV’s future growth? Take a look at our free research report of analyst consensus for UNV’s outlook.
- Valuation: What is UNV 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 UNV 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.
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