Important news for shareholders and potential investors in Cochlear Limited (ASX:COH): The dividend payment of AU$1.60 per share will be distributed to shareholders on 10 October 2018, and the stock will begin trading ex-dividend at an earlier date, 17 September 2018. Should you diversify into Cochlear and boost your portfolio income stream? Well, keep on reading because today, I’m going to look at the latest data and analyze the stock and its dividend property in further detail.

See our latest analysis for Cochlear

Here’s how I find good dividend stocks

Whenever I am looking at a potential dividend stock investment, I always check these five metrics:

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

• Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?

• Has dividend per share amount increased over the past?

• Is is able to pay the current rate of dividends from its earnings?

• Based on future earnings growth, will it be able to continue to payout dividend at the current rate?

How well does Cochlear fit our criteria?

Cochlear has a trailing twelve-month payout ratio of 70.2%, which means that the dividend is covered by earnings. In the near future, analysts are predicting a payout ratio of 70.1%, leading to a dividend yield of around 1.8%. Furthermore, EPS should increase to A$4.78.

If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider the cash flow of the business. 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. Although COH’s per share payments have increased in the past 10 years, it has not been a completely smooth ride. Investors have seen reductions in the dividend per share in the past, although, it has picked up again.

In terms of its peers, Cochlear produces a yield of 1.5%, which is high for Medical Equipment stocks but still below the low risk savings rate.

Next Steps:

Taking all the above into account, Cochlear is a complicated pick for dividend investors given that there are a couple of positive things about it as well as negative. 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 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 pertinent aspects you should look at: