Important news for shareholders and potential investors in Tatts Group Limited (ASX:TTS): The dividend payment of A$0.16 per share will be distributed into shareholder on 19 December 2017, and the stock will begin trading ex-dividend at an earlier date, 14 December 2017. Investors looking for higher income-generating stocks to add to their portfolio should keep reading, as I examine TTS’s latest financial data to analyse its dividend characteristics. View our latest analysis for Tatts Group

5 questions to ask before buying a dividend stock

When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:

• Is their annual yield among the top 25% of dividend payers?

• Has it paid dividend every year without dramatically reducing payout in the past?

• Has it increased its dividend per share amount over the past?

• Is its earnings sufficient to payout dividend at the current rate?

• Will it be able to continue to payout at the current rate in the future?

How well does Tatts Group fit our criteria?

Tatts Group has a payout ratio of 116.09%, meaning the dividend is not sufficiently covered by its earnings. In the near future, analysts are predicting a lower payout ratio of 103.17%, leading to a dividend yield of 4.20%. However, EPS should increase to A$0.17, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment. If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. Not only have dividend payouts from Tatts Group fallen over the past 10 years, it has also been highly volatile during this time, with drops of over 25% in some years. This means that dividend hunters should probably steer clear of the stock, at least for now until the track record improves. In terms of its peers, Tatts Group produces a yield of 3.97%, which is high for hotels, restaurants and leisure stocks but still below the market’s top dividend payers.

What this means for you:

Are you a shareholder? Investors may not have the best feeling about their investment in TTS right now, in terms of its dividend attributes. It may be beneficial exploring other dividend stocks as alternatives to TTS or even look at high-growth stocks to supplement your steady income stocks. I suggest continuing your research by checking out my interactive free list of dividend rockstars as well as high-growth stocks to potentially add to your holdings.

Are you a potential investor? Now you know to keep in mind the reason why investors should be careful investing in TTS for the dividend. On the other hand, if you are not strictly just a dividend investor, TTS could still be offering some interesting investment opportunities. As always, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. Take a look at our latest free fundmental analysis to explore other aspects of TTS.

To help readers see pass 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.