Yahoo Finance Should You Buy CSL Limited (ASX:CSL) For Its Dividend?
A sizeable part of portfolio returns can be produced by dividend stocks due to their contribution to compounding returns in the long run. Historically, CSL Limited (ASX:CSL) has been paying a dividend to shareholders. Today it yields 1.3%. Should it have a place in your portfolio? Let’s take a look at CSL in more detail.
Check out our latest analysis for CSL
How I analyze a dividend stock
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 it consistently paid a stable dividend without missing a payment or drastically cutting payout?
Has dividend per share risen in the past couple of years?
Is is able to pay the current rate of dividends from its earnings?
Will it have the ability to keep paying its dividends going forward?
Does CSL pass our checks?
The current trailing twelve-month payout ratio for the stock is 45%, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting a payout ratio of 44% which, assuming the share price stays the same, leads to a dividend yield of around 1.5%. Furthermore, EPS should increase to $4.46.
If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider 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 CSL fallen over the past 10 years, it has also been highly volatile during this time, with drops of over 25% in some years. These characteristics do not bode well for income investors seeking reliable stream of dividends.
In terms of its peers, CSL produces a yield of 1.3%, which is on the low-side for Biotechs stocks.
Next Steps:
Now you know to keep in mind the reason why investors should be careful investing in CSL for the dividend. On the other hand, if you are not strictly just a dividend investor, the stock could still be offering some interesting investment opportunities. 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. There are three key aspects you should further research:
Future Outlook: What are well-informed industry analysts predicting for CSL’s future growth? Take a look at our free research report of analyst consensus for CSL’s outlook.
Valuation: What is CSL 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 CSL 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.
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 editorial-team@simplywallst.com. 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.
