Shares of Collection House Limited (ASX:CLH) will begin trading ex-dividend in 4 days. To qualify for the dividend check of AU$0.039 per share, investors must have owned the shares prior to 03 October 2018, which is the last day the company’s management will finalize their list of shareholders to which they will send dividend payments. Investors looking for higher income-generating stocks to add to their portfolio should keep reading, as I take a deeper dive into Collection House’s latest financial data to analyse its dividend attributes.

See our latest analysis for Collection House

5 checks you should use to assess a dividend stock

When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:

• Does it pay an annual yield higher than 75% of dividend payers?

• 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 it have the ability to keep paying its dividends going forward?

How does Collection House fare?

The company currently pays out 40.6% of its earnings as a dividend, according to its trailing twelve-month data, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect CLH’s payout to increase to 47.0% of its earnings, which leads to a dividend yield of 5.6%. However, EPS is forecasted to fall to A$0.19 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. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.

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. In the case of CLH it has increased its DPS from A$0.050 to A$0.078 in the past 10 years. It has also been paying out dividend consistently during this time, as you’d expect for a company increasing its dividend levels. This is an impressive feat, which makes CLH a true dividend rockstar.

In terms of its peers, Collection House generates a yield of 4.9%, which is high for Commercial Services stocks but still below the market’s top dividend payers.

Next Steps:

With these dividend metrics in mind, I definitely rank Collection House as a strong income stock, and is worth further research for anyone who considers dividends an important part of their portfolio strategy. 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 factors you should further examine: