A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. Historically, Probiotec Limited (ASX:PBP) has paid a dividend to shareholders. It currently yields 1.7%. Let’s dig deeper into whether Probiotec should have a place in your portfolio.
View our latest analysis for Probiotec
How I analyze a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
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Is its annual yield among the top 25% of dividend-paying companies?
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Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
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Has dividend per share risen in the past couple of years?
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Can it afford to pay the current rate of dividends from its earnings?
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Will it be able to continue to payout at the current rate in the future?
How well does Probiotec fit our criteria?
The company currently pays out 40% of its earnings as a dividend, according to its trailing twelve-month data, meaning the dividend is sufficiently 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.
If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider the cash flow of the business. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. Not only have dividend payouts from Probiotec fallen over the past 10 years, it has also been highly volatile during this time, with drops of over 25% in some years. These characteristics do not bode well for income investors seeking reliable stream of dividends.
Relative to peers, Probiotec generates a yield of 1.7%, which is on the low-side for Pharmaceuticals stocks.
Next Steps:
Now you know to keep in mind the reason why investors should be careful investing in Probiotec for the dividend. On the other hand, if you are not strictly just a dividend investor, the stock could still be offering 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. There are three important factors you should further examine:
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Future Outlook: What are well-informed industry analysts predicting for PBP’s future growth? Take a look at our free research report of analyst consensus for PBP’s outlook.
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Historical Performance: What has PBP’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
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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.