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Dividend paying stocks like JLT Mobile Computers AB (publ) (STO:JLT) tend to be popular with investors, and for good reason - some research suggests a significant amount of all stock market returns come from reinvested dividends. On the other hand, investors have been known to buy a stock because of its yield, and then lose money if the company's dividend doesn't live up to expectations.
With a 3.0% yield and a six-year payment history, investors probably think JLT Mobile Computers looks like a reliable dividend stock. A 3.0% yield is not inspiring, but the longer payment history has some appeal. Remember though, due to the recent spike in its share price, JLT Mobile Computers's yield will look lower, even though the market may now be factoring in an improvement in its long-term prospects. There are a few simple ways to reduce the risks of buying JLT Mobile Computers for its dividend, and we'll go through these below.
Explore this interactive chart for our latest analysis on JLT Mobile Computers!
Payout ratios
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. As a result, we should always investigate whether a company can afford its dividend, measured as a percentage of a company's net income after tax. JLT Mobile Computers paid out 49% of its profit as dividends, over the trailing twelve month period. A medium payout ratio strikes a good balance between paying dividends, and keeping enough back to invest in the business. One of the risks is that management reinvests the retained capital poorly instead of paying a higher dividend.
Another important check we do is to see if the free cash flow generated is sufficient to pay the dividend. JLT Mobile Computers paid out 52% of its cash flow as dividends last year, which is within a reasonable range for the average corporation. It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
While the above analysis focuses on dividends relative to a company's earnings, we do note JLT Mobile Computers's strong net cash position, which will let it pay larger dividends for a time, should it choose.
Consider getting our latest analysis on JLT Mobile Computers's financial position here.
Dividend Volatility
From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. Looking at the data, we can see that JLT Mobile Computers has been paying a dividend for the past six years. The company has been paying a stable dividend for a while now, which is great. However we'd prefer to see consistency for a few more years before giving it our full seal of approval. During the past six-year period, the first annual payment was kr0.05 in 2013, compared to kr0.22 last year. Dividends per share have grown at approximately 28% per year over this time.