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Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. Ambea AB (publ) (STO:AMBEA) has begun paying dividends recently. It now yields 1.2%. Let’s dig deeper into whether Ambea should have a place in your portfolio.
See our latest analysis for Ambea
5 checks you should do on a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
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Is it the top 25% annual dividend yield payer?
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Does it consistently pay out dividends without missing a payment of significantly cutting payout?
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Has dividend per share amount increased over the past?
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Does earnings amply cover its dividend payments?
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Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
How does Ambea fare?
The company currently pays out 22% of its earnings as a dividend, according to its trailing twelve-month data, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting a higher payout ratio of 28%, leading to a dividend yield of 2.1%. Furthermore, EPS should increase to SEK5.09. The higher payout forecasted, along with higher earnings, should lead to greater dividend income for investors 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. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.
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 Ambea 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 AMBEA one as a stable dividend player.
In terms of its peers, Ambea has a yield of 1.2%, which is on the low-side for Healthcare stocks.
Next Steps:
After digging a little deeper into Ambea’s yield, it’s easy to see why you should be cautious investing in the company just 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, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. Below, I’ve compiled three relevant aspects you should look at: