Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. Historically, Dixons Carphone plc (LON:DC.) has paid dividends to shareholders, and these days it yields 7.0%. Should it have a place in your portfolio? Let’s take a look at Dixons Carphone in more detail.
Check out our latest analysis for Dixons Carphone
Here’s how I find good dividend stocks
When researching a dividend stock, I always follow the following screening criteria:
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Is their annual yield among the top 25% of dividend payers?
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Has it paid dividend every year without dramatically reducing payout in the past?
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Has it increased its dividend per share amount over the past?
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Can it afford to pay the current rate of dividends from its earnings?
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Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
Does Dixons Carphone pass our checks?
The company currently pays out 55% 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 53%, leading to a dividend yield of around 6.9%. In addition to this, EPS is forecasted to fall to £0.20 in the upcoming year.
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. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. Unfortunately, it is really too early to view Dixons Carphone as a dividend investment. It has only been consistently paying dividends for 9 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
Relative to peers, Dixons Carphone has a yield of 7.0%, which is high for Specialty Retail stocks.
Next Steps:
Taking into account the dividend metrics, Dixons Carphone ticks most of the boxes as a strong dividend investment, putting it in my list of top dividend payers. 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 key aspects you should further research:
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Future Outlook: What are well-informed industry analysts predicting for DC.’s future growth? Take a look at our free research report of analyst consensus for DC.’s outlook.
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Valuation: What is DC. 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 DC. is currently mispriced by the market.
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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.