On the 14 June 2019, Technology One Limited (ASX:TNE) will be paying shareholders an upcoming dividend amount of AU$0.032 per share. However, investors must have bought the company’s stock before 30 May 2019 in order to qualify for the payment. That means you have only 4 days left! What does this mean for current shareholders and potential investors? Below, I will explain how holding Technology One can impact your portfolio income stream, by analysing the stock’s most recent financial data and dividend attributes.
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5 questions I ask before picking a dividend stock
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
- Is its annual yield among the top 25% of dividend-paying companies?
- Does it consistently pay out dividends without missing a payment of significantly cutting payout?
- Has dividend per share risen in the past couple of years?
- 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?
Does Technology One pass our checks?
Technology One has a trailing twelve-month payout ratio of 49%, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting a higher payout ratio of 67% which, assuming the share price stays the same, leads to a dividend yield of around 1.9%. However, EPS is forecasted to fall to A$0.19 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
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. In the case of TNE it has increased its DPS from A$0.037 to A$0.11 in the past 10 years. It has also been paying out dividend consistently during this time, as you’d expect for a company increasing its dividend levels. These are all positive signs of a great, reliable dividend stock.
Compared to its peers, Technology One generates a yield of 1.6%, which is high for Software stocks but still below the low risk savings rate.
With this in mind, I definitely rank Technology One as a strong dividend stock, and makes it worth further research for anyone who likes steady income generation from their portfolio. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. I’ve put together three important factors you should further research:
- Future Outlook: What are well-informed industry analysts predicting for TNE’s future growth? Take a look at our free research report of analyst consensus for TNE’s outlook.
- Valuation: What is TNE 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 TNE 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.
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