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Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. Bonava AB (publ) (STO:BONAV B) has recently paid dividends to shareholders, and currently yields 4.6%. Let’s dig deeper into whether Bonava should have a place in your portfolio.
See our latest analysis for Bonava
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:
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Is its annual yield among the top 25% of dividend-paying companies?
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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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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 Bonava pass our checks?
The current trailing twelve-month payout ratio for the stock is 44%, which means that the dividend is covered by earnings. Going forward, analysts expect BONAV B’s payout to remain around the same level at 45% of its earnings. Assuming a constant share price, this equates to a dividend yield of around 4.9%. In addition to this, EPS is forecasted to fall to SEK11.11 in the upcoming year.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.
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 Bonava 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, Bonava generates a yield of 4.6%, which is high for Consumer Durables stocks but still below the market’s top dividend payers.
Next Steps:
Taking all the above into account, Bonava is a complicated pick for dividend investors given that there are a couple of positive things about it as well as negative. 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 key aspects you should further research: