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Severn Trent Plc (LON:SVT) has pleased shareholders over the past 10 years, by paying out dividends. The company currently pays out a dividend yield of 4.6% to shareholders, making it a relatively attractive dividend stock. Should it have a place in your portfolio? Let’s take a look at Severn Trent in more detail.
Check out our latest analysis for Severn Trent
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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Does it pay an annual yield higher than 75% of dividend payers?
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Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
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Has it increased its dividend per share amount over the past?
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Does earnings amply cover its dividend payments?
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Will it have the ability to keep paying its dividends going forward?
Does Severn Trent pass our checks?
Severn Trent has a trailing twelve-month payout ratio of 85%, which means that the dividend is covered by earnings. In the near future, analysts are predicting lower payout ratio of 71%, leading to a dividend yield of 5.2%. However, EPS should increase to £1.32, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
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.
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. In the case of SVT it has increased its DPS from £0.66 to £0.87 in the past 10 years. During this period it has not missed a payment, as one would expect for a company increasing its dividend. These are all positive signs of a great, reliable dividend stock.
In terms of its peers, Severn Trent produces a yield of 4.6%, which is high for Water Utilities stocks but still below the market’s top dividend payers.
Next Steps:
With this in mind, I definitely rank Severn Trent 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. There are three pertinent factors you should further examine: