Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. In the past 3 years Capital Drilling Limited (LSE:CAPD) has returned an average of 5.00% per year to investors in the form of dividend payouts. Does Capital Drilling tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis. Check out our latest analysis for Capital Drilling
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 it the top 25% annual dividend yield payer?
- Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
- Has dividend per share amount increased over the past?
- Is it able to pay the current rate of dividends from its earnings?
- Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
Does Capital Drilling pass our checks?
The current trailing twelve-month payout ratio for the stock is 44.08%, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect CAPD’s payout to increase to 48.84% of its earnings, which leads to a dividend yield of around 3.61%. However, EPS is forecasted to fall to $0.03 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher 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. Unfortunately, it is really too early to view Capital Drilling 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. Relative to peers, Capital Drilling generates a yield of 2.98%, which is high for Energy Services stocks but still below the market’s top dividend payers.
If Capital Drilling is in your portfolio for cash-generating reasons, there may be better alternatives out there. 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. Below, I’ve compiled three essential factors you should further research:
- Future Outlook: What are well-informed industry analysts predicting for CAPD’s future growth? Take a look at our free research report of analyst consensus for CAPD’s outlook.
- Valuation: What is CAPD 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 CAPD 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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