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A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. Domain Holdings Australia Limited (ASX:DHG) has started paying a dividend to shareholders. It currently trades on a yield of 3.2%. Should it have a place in your portfolio? Let’s take a look at Domain Holdings Australia in more detail.
Check out our latest analysis for Domain Holdings Australia
How I analyze a dividend stock
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
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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 the amount of dividend per share grown over the past?
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Is is able to pay the current rate of dividends from its earnings?
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Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
How well does Domain Holdings Australia fit our criteria?
Domain Holdings Australia has a negative payout ratio, meaning that the company is not yet profitable and is paying dividend by dipping into its retained earnings.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.
If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. Unfortunately, it is really too early to view Domain Holdings Australia as a dividend investment. It has only been paying out dividend for the past one year. Generally, the rule of thumb for determining whether a stock is a reliable dividend payer is that it should be consistently paying dividends for the past 10 years or more. Clearly there’s a long road ahead before we can ascertain whether DHG one as a stable dividend player.
Compared to its peers, Domain Holdings Australia produces a yield of 3.2%, which is high for Interactive Media and Services stocks but still below the market’s top dividend payers.
Next Steps:
After digging a little deeper into Domain Holdings Australia’s yield, it’s easy to see why you should be cautious investing in the company just for the dividend. 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. There are three essential factors you should further examine: