Important news for shareholders and potential investors in Headlam Group plc (LON:HEAD): The dividend payment of UK£0.075 per share will be distributed to shareholders on 02 January 2019, and the stock will begin trading ex-dividend at an earlier date, 29 November 2018. Investors looking for higher income-generating stocks to add to their portfolio should keep reading, as I examine Headlam Group’s latest financial data to analyse its dividend characteristics.

View our latest analysis for Headlam Group

How I analyze a dividend stock

If you are a dividend investor, you should always assess these five key metrics:

• Is its annual yield among the top 25% of dividend-paying companies?

• Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?

• Has the amount of dividend per share grown over the past?

• Is its earnings sufficient to payout dividend at the current rate?

• Will the company be able to keep paying dividend based on the future earnings growth?

How well does Headlam Group fit our criteria?

The current trailing twelve-month payout ratio for the stock is 64%, which means that the dividend is covered by earnings. Going forward, analysts expect HEAD’s payout to remain around the same level at 59% of its earnings, which leads to a dividend yield of around 5.8%. In addition to this, EPS should increase to £0.40.

When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.

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. Whilst its per-share payments have increased during the past 10 years, there has been some hiccups. Shareholders would have seen a few years of reduced payments in this time.

Relative to peers, Headlam Group produces a yield of 5.5%, which is high for Retail Distributors stocks.

Next Steps:

With this in mind, I definitely rank Headlam Group as a strong dividend stock, and makes it worth further research for anyone who likes steady income generation from their portfolio. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. I’ve put together three key aspects you should further research: