A sizeable part of portfolio returns can be produced by dividend stocks due to their contribution to compounding returns in the long run. Over the past 2 years, Costa Group Holdings Limited (ASX:CGC) has returned an average of 2.00% per year to shareholders in terms of dividend yield. Should it have a place in your portfolio? Let’s take a look at Costa Group Holdings in more detail. See our latest analysis for Costa Group Holdings
5 checks you should do on a dividend stock
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
- Is their annual yield among the top 25% of dividend payers?
- Has it paid dividend every year without dramatically reducing payout in the past?
- Has dividend per share risen in the past couple of years?
- Is its earnings sufficient to payout dividend at the current rate?
- Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
How well does Costa Group Holdings fit our criteria?
The current trailing twelve-month payout ratio for the stock is 35.48%, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting a higher payout ratio of 58.33%, leading to a dividend yield of 2.42%. However, EPS is forecasted to fall to A$0.32 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.
If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. The reality is that it is too early to consider Costa Group Holdings as a dividend investment. It has only been consistently paying dividends for 2 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
In terms of its peers, Costa Group Holdings generates a yield of 1.44%, which is on the low-side for Food stocks.
After digging a little deeper into Costa Group Holdings’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 recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. I’ve put together three pertinent factors you should look at:
- Future Outlook: What are well-informed industry analysts predicting for CGC’s future growth? Take a look at our free research report of analyst consensus for CGC’s outlook.
- Valuation: What is CGC 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 CGC 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.
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