A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. Historically, FBD Holdings plc (ISE:EG7) has paid a dividend to shareholders. It currently yields 2.6%. Does FBD Holdings tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
Check out our latest analysis for FBD Holdings
5 checks you should use to assess a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
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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 dividend per share risen in the past couple of years?
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Is is able to pay the current rate of dividends from its earnings?
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Will it have the ability to keep paying its dividends going forward?
How does FBD Holdings fare?
The current trailing twelve-month payout ratio for the stock is 17%, which means that the dividend is covered by earnings. Going forward, analysts expect EG7’s payout to increase to 40% of its earnings, which leads to a dividend yield of 4.0%. However, EPS is forecasted to fall to €0.83 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.
Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. Not only have dividend payouts from FBD Holdings fallen over the past 10 years, it has also been highly volatile during this time, with drops of over 25% in some years. This means that dividend hunters should probably steer clear of the stock, at least for now until the track record improves.
Compared to its peers, FBD Holdings has a yield of 2.6%, which is on the low-side for Insurance stocks.
Next Steps:
If you are building an income portfolio, then FBD Holdings is a complicated choice since it has some positive aspects as well as negative ones. 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. I’ve put together three important aspects you should further research: