Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. Over the past 2 years, Think Childcare Limited (ASX:TNK) has returned an average of 4.00% per year to shareholders in terms of dividend yield. Does Think Childcare tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis. Check out our latest analysis for Think Childcare
How I analyze a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
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Is its annual yield among the top 25% of dividend-paying companies?
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Has it paid dividend every year without dramatically reducing payout in the past?
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Has dividend per share amount increased over the past?
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Can it afford to pay the current rate of dividends from its earnings?
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Will it have the ability to keep paying its dividends going forward?
How well does Think Childcare fit our criteria?
The company currently pays out 58.08% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is covered by earnings. In the near future, analysts are predicting a payout ratio of 60.87%, leading to a dividend yield of 6.30%. In addition to this, EPS should increase to A$0.16. 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 Think Childcare 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. Compared to its peers, Think Childcare produces a yield of 4.50%, which is high for Consumer Services stocks but still below the market’s top dividend payers.
Next Steps:
If Think Childcare is in your portfolio for cash-generating reasons, there may be better alternatives out there. 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, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. There are three fundamental aspects you should further research:
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1. Future Outlook: What are well-informed industry analysts predicting for TNK’s future growth? Take a look at our free research report of analyst consensus for TNK’s outlook.
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2. Valuation: What is TNK 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 TNK is currently mispriced by the market.
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3. Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.