A sizeable part of portfolio returns can be produced by dividend stocks due to their contribution to compounding returns in the long run. Historically,does beyonce write her own lyrics worksheet Severfield plc (

LON:SFR

) has been paying a dividend to shareholders. Today it yields 3.7%. Does Severfield tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.

Check out our latest analysis for Severfield

Here’s how I find good dividend stocks

Whenever I am looking at a potential dividend stock investment, I always check these five metrics:

Is its annual yield among the top 25% of dividend-paying companies?

Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?

Has the amount of dividend per share grown over the past?

Can it afford to pay the current rate of dividends from its earnings?

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

LSE:SFR Historical Dividend Yield January 2nd 19

How does Severfield fare?

Severfield has a trailing twelve-month payout ratio of 42%, which means that the dividend is covered by earnings. In the near future, analysts are predicting a payout ratio of 43% which, assuming the share price stays the same, leads to a dividend yield of 4.3%. Furthermore, EPS should increase to £0.068.

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.

Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. Not only have dividend payouts from Severfield 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.

Relative to peers, Severfield generates a yield of 3.7%, which is on the low-side for Construction stocks.

Next Steps:

If you are building an income portfolio, then Severfield is a complicated choice since it has some positive aspects as well as negative ones. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. 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. I’ve put together three essential factors you should further examine:

Story continues

Future Outlook

: What are well-informed industry analysts predicting for SFR’s future growth? Take a look at our

free research report of analyst consensus

for SFR’s outlook.

Valuation

: What is SFR 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 SFR is currently mispriced by the market.

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

[email protected]

.

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