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Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. McColl’s Retail Group plc (LON:MCLS) has paid a dividend to shareholders in the last few years. It currently yields 8.6%. Let’s dig deeper into whether McColl’s Retail Group should have a place in your portfolio.
Check out our latest analysis for McColl’s Retail Group
How I analyze a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
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Is it the top 25% annual dividend yield payer?
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Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
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Has dividend per share risen in the past couple of years?
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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 McColl’s Retail Group fare?
The company currently pays out 95% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is not well-covered by its earnings. In the near future, analysts are predicting a more sensible payout ratio of 62%, leading to a dividend yield of around 9.1%.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
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 McColl’s Retail Group as a dividend investment. It has only been consistently paying dividends for 4 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
Compared to its peers, McColl’s Retail Group produces a yield of 8.6%, which is high for Consumer Retailing stocks.
Next Steps:
If you are building an income portfolio, then McColl’s Retail Group is a complicated choice since it has some positive aspects as well as negative ones. However, if you are not strictly just a dividend investor, the stock could still offer 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. Below, I’ve compiled three fundamental aspects you should further examine: