Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. National Veterinary Care Ltd (ASX:NVL) has started paying a dividend to shareholders. It currently trades on a yield of 1.5%. Let’s dig deeper into whether National Veterinary Care should have a place in your portfolio.
Check out our latest analysis for National Veterinary Care
5 checks you should use to assess a dividend stock
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
-
Is it the top 25% annual dividend yield payer?
-
Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
-
Has dividend per share amount increased over the past?
-
Is is able to pay the current rate of dividends from its earnings?
-
Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
How does National Veterinary Care fare?
The company currently pays out 28% 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 payout ratio of 26%, leading to a dividend yield of 2.0%. In addition to this, EPS should increase to A$0.13.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. 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. Unfortunately, it is really too early to view National Veterinary Care as a dividend investment. Last year was the company’s first dividend payment, so it is certainly early days. The standard practice for reliable payers is to look for 10 or so years of track record.
Compared to its peers, National Veterinary Care generates a yield of 1.5%, which is on the low-side for Healthcare stocks.
Next Steps:
Now you know to keep in mind the reason why investors should be careful investing in National Veterinary Care for the dividend. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. 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. There are three essential aspects you should look at:
-
Future Outlook: What are well-informed industry analysts predicting for NVL’s future growth? Take a look at our free research report of analyst consensus for NVL’s outlook.
-
Valuation: What is NVL 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 NVL is currently mispriced by the market.
-
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.