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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. MotorCycle Holdings Limited (ASX:MTO) has paid a dividend to shareholders in the last few years. It currently yields 6.3%. Should it have a place in your portfolio? Let’s take a look at MotorCycle Holdings in more detail.
View our latest analysis for MotorCycle Holdings
5 questions I ask before picking 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 it the top 25% annual dividend yield payer?
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Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
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Has it increased its dividend per share amount over the past?
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Is its earnings sufficient to payout dividend at the current rate?
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Will it have the ability to keep paying its dividends going forward?
How does MotorCycle Holdings fare?
The current trailing twelve-month payout ratio for the stock is 72%, which means that the dividend is covered by earnings. However, going forward, analysts expect MTO’s payout to fall to 57% of its earnings, which leads to a dividend yield of around 8.0%. However, EPS should increase to A$0.23, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
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 MotorCycle Holdings as a dividend investment. It has only been consistently paying dividends for 2 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
In terms of its peers, MotorCycle Holdings produces a yield of 6.3%, which is high for Specialty Retail stocks.
Next Steps:
With these dividend metrics in mind, I definitely rank MotorCycle Holdings 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, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. I’ve put together three essential factors you should further examine: