Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. Historically, Rotork plc (LON:ROR) has been paying a dividend to shareholders. Today it yields 2.1%. Does Rotork tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
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How I analyze a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Is their annual yield among the top 25% of dividend payers?
- Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
- Has dividend per share amount increased over the past?
- Is its earnings sufficient to payout dividend at the current rate?
- Will the company be able to keep paying dividend based on the future earnings growth?
How does Rotork fare?
Rotork has a trailing twelve-month payout ratio of 56%, which means that the dividend is covered by earnings. In the near future, analysts are predicting lower payout ratio of 45% which, assuming the share price stays the same, leads to a dividend yield of around 2.4%. However, EPS should increase to £0.11, 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 is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. Although ROR’s per share payments have increased in the past 10 years, it has not been a completely smooth ride. Shareholders would have seen a few years of reduced payments in this time.
Compared to its peers, Rotork has a yield of 2.1%, which is on the low-side for Machinery stocks.
Keeping in mind the dividend characteristics above, Rotork is definitely worth considering for investors looking to build a dedicated income portfolio. 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 look at:
- Future Outlook: What are well-informed industry analysts predicting for ROR’s future growth? Take a look at our free research report of analyst consensus for ROR’s outlook.
- Valuation: What is ROR 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 ROR is currently mispriced by the market.
- Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.