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Attention dividend hunters! Caffyns plc (LON:CFYN) will be distributing its dividend of UK£0.075 per share on the 07 January 2019, and will start trading ex-dividend in 4 days time on the 06 December 2018. Investors looking for higher income-generating stocks to add to their portfolio should keep reading, as I examine Caffyns’s latest financial data to analyse its dividend characteristics.

View our latest analysis for Caffyns

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 their annual yield among the top 25% of dividend payers?

• Does it consistently pay out dividends without missing a payment of significantly cutting payout?

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

• Is its earnings sufficient to payout dividend at the current rate?

• Based on future earnings growth, will it be able to continue to payout dividend at the current rate?

How does Caffyns fare?

Caffyns has a trailing twelve-month payout ratio of 61%, 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.

When assessing the forecast sustainability of a dividend it is also worth considering 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.

Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. Although CFYN’s per share payments have increased in the past 10 years, it has not been a completely smooth ride. Investors have seen reductions in the dividend per share in the past, although, it has picked up again.

Compared to its peers, Caffyns produces a yield of 5.6%, which is high for Specialty Retail stocks.

Next Steps:

With this in mind, I definitely rank Caffyns as a strong dividend stock, and makes it worth further research for anyone who likes steady income generation from their portfolio. 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. I’ve put together three important factors you should further examine:

1. Future Outlook: What are well-informed industry analysts predicting for CFYN’s future growth? Take a look at our free research report of analyst consensus for CFYN’s outlook.

2. Historical Performance: What has CFYN’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.

3. Other 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 past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.