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Have you been keeping an eye on PEC Ltd’s (SGX:IX2) upcoming dividend of S$0.02 per share payable on the 20 November 2018? Then you only have 4 days left before the stock starts trading ex-dividend on the 05 November 2018. What does this mean for current shareholders and potential investors? Below, I will explain how holding PEC can impact your portfolio income stream, by analysing the stock’s most recent financial data and dividend attributes.

See our latest analysis for PEC

Here’s how I find good dividend stocks

When researching a dividend stock, I always follow the following screening criteria:

• Is its annual yield among the top 25% of dividend-paying companies?

• Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?

• Has dividend per share risen in the past couple of years?

• Is is able to pay the current rate of dividends from its earnings?

• Will it have the ability to keep paying its dividends going forward?

How well does PEC fit our criteria?

The current trailing twelve-month payout ratio for the stock is 49%, which means that the dividend is covered by earnings. Furthermore, analysts have not forecasted a dividends per share for the future, which makes it hard to determine the yield shareholders should expect, and whether the current payout is sustainable, moving forward.

If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider the cash flow of the business. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.

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 PEC as a dividend investment. It has only been consistently paying dividends for 9 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.

Relative to peers, PEC produces a yield of 3.3%, which is on the low-side for Construction stocks.

Next Steps:

Now you know to keep in mind the reason why investors should be careful investing in PEC for the dividend. On the other hand, if you are not strictly just a dividend investor, the stock could still be offering some interesting investment opportunities. 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 relevant aspects you should further examine: