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A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. In the past 10 years Technology One Limited (ASX:TNE) has returned an average of 3.00% per year to investors in the form of dividend payouts. Does Technology One tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis. See our latest analysis for Technology One
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:
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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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Is it able to pay the current rate of dividends from its earnings?
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Will the company be able to keep paying dividend based on the future earnings growth?
How does Technology One fare?
Technology One has a trailing twelve-month payout ratio of 57.84%, which means that the dividend is covered by earnings. Going forward, analysts expect TNE’s payout to increase to 72.85% of its earnings, which leads to a dividend yield of 2.88%. Moreover, EPS should increase to A$0.17. The higher payout forecasted, along with higher earnings, should lead to greater dividend income for investors moving forward. If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. Although TNE’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. In terms of its peers, Technology One has a yield of 2.11%, which is high for Software stocks but still below the low risk savings rate.
Next Steps:
Taking all the above into account, Technology One 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. I’ve put together three fundamental factors you should further research:
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1. Future Outlook: What are well-informed industry analysts predicting for TNE’s future growth? Take a look at our free research report of analyst consensus for TNE’s outlook.
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2. Valuation: What is TNE 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 TNE 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.