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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. Microware Group Limited (HKG:1985) has begun paying dividends recently. It now yields 6.6%. Should it have a place in your portfolio? Let’s take a look at Microware Group in more detail.
View our latest analysis for Microware Group
5 checks you should do on a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
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Is it paying an annual yield above 75% of dividend payers?
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Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
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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 the company be able to keep paying dividend based on the future earnings growth?
How well does Microware Group fit our criteria?
The company currently pays out 70% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is covered by earnings. Furthermore, analysts have not forecasted a dividends per share for the future, which makes it hard to determine the yield shareholders should expect, and whether the current payout is sustainable, moving forward.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. Unfortunately, it is really too early to view Microware Group as a dividend investment. Last year was the company’s first dividend payment, so it is certainly early days. The standard practice for reliable payers is to look for 10 or so years of track record.
In terms of its peers, Microware Group produces a yield of 6.6%, which is high for IT stocks.
Next Steps:
Whilst there are few things you may like about Microware Group from a dividend stock perspective, the truth is that overall it probably is not the best choice for a dividend investor. 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 key aspects you should further examine: