Have you been keeping an eye on Infratil Limited’s (NZSE:IFT) upcoming dividend of NZ$0.069 per share payable on the 14 December 2018? Then you only have 4 days left before the stock starts trading ex-dividend on the 26 November 2018. Investors looking for higher income-generating stocks to add to their portfolio should keep reading, as I take a deeper dive into Infratil’s latest financial data to analyse its dividend attributes.

See our latest analysis for Infratil

5 checks you should use to assess a dividend stock

When researching a dividend stock, I always follow the following screening criteria:

• 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 the amount of dividend per share grown over the past?

• Can it afford 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?

Does Infratil pass our checks?

Infratil has a trailing twelve-month payout ratio of 142%, meaning the dividend is not sufficiently covered by its earnings. Going forward, analysts expect IFT’s payout to reduce to 120% of its earnings, which leads to a dividend yield of around 5.2%. However, EPS should increase to NZ$0.19, 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. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.

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. In the case of IFT it has increased its DPS from NZ$0.063 to NZ$0.19 in the past 10 years. During this period it has not missed a payment, as one would expect for a company increasing its dividend. These are all positive signs of a great, reliable dividend stock.

Compared to its peers, Infratil generates a yield of 5.3%, which is on the low-side for Electric Utilities stocks.

Next Steps:

Taking all the above into account, Infratil is a complicated pick for dividend investors given that there are a couple of positive things about it as well as negative. 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, 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. Below, I’ve compiled three essential factors you should further examine:

1. Future Outlook: What are well-informed industry analysts predicting for IFT’s future growth? Take a look at our free research report of analyst consensus for IFT’s outlook.

2. Valuation: What is IFT worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether IFT is currently mispriced by the market.

3. Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.