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A sizeable part of portfolio returns can be produced by dividend stocks due to their contribution to compounding returns in the long run. In the past 3 years Empiric Student Property plc (LSE:ESP) has returned an average of 5.00% per year to investors in the form of dividend payouts. Does Empiric Student Property tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis. View our latest analysis for Empiric Student Property
5 questions to ask before buying a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
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Is it paying an annual yield above 75% of dividend payers?
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Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
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Has the amount of dividend per share grown over the past?
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Is its earnings sufficient to payout dividend at the current rate?
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Will the company be able to keep paying dividend based on the future earnings growth?
How well does Empiric Student Property fit our criteria?
REITs are a special-case dividend payer. This is because a high percentage of their earnings are required to be paid out as dividends. The company currently pays out 144.58% of its earnings as a dividend, according to its trailing twelve-month data, meaning that a portion of dividend payments are funded by retained earnings. In the near future, analysts are predicting a more sensible payout ratio of 94.90%, leading to a dividend yield of around 6.10%. Furthermore, EPS should increase to £0.07, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment. If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. The reality is that it is too early to consider Empiric Student Property as a dividend investment. It has only been consistently paying dividends for 3 years, however, standard practice for reliable payers is to look for a 10-year minimum track record. Relative to peers, Empiric Student Property has a yield of 6.70%, which is high for REITs stocks.
Next Steps:
Whilst there are few things you may like about Empiric Student Property from a dividend stock perspective, the truth is that overall it probably is not the best choice for a dividend investor. 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 pertinent factors you should look at: