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Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. Historically, Seplat Petroleum Development Company Plc (LON:SEPL) has paid a dividend to shareholders. It currently yields 6.4%. Does Seplat Petroleum Development tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
See our latest analysis for Seplat Petroleum Development
5 checks you should use to assess a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
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Is their annual yield among the top 25% of dividend payers?
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Does it consistently pay out dividends without missing a payment of significantly cutting payout?
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Has the amount of dividend per share grown over the past?
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Does earnings amply cover its dividend payments?
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Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
Does Seplat Petroleum Development pass our checks?
Seplat Petroleum Development has a trailing twelve-month payout ratio of 16%, which means that the dividend is covered by earnings. Going forward, analysts expect SEPL’s payout to increase to 40% of its earnings. Assuming a constant share price, this equates to a dividend yield of around 8.8%. However, EPS is forecasted to fall to $0.34 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
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 Seplat Petroleum Development as a dividend investment. It has only been consistently paying dividends for 5 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
Compared to its peers, Seplat Petroleum Development has a yield of 6.4%, which is high for Oil and Gas stocks.
Next Steps:
Keeping in mind the dividend characteristics above, Seplat Petroleum Development is definitely worth considering for investors looking to build a dedicated income portfolio. 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 research: