Is Lookers plc (LON:LOOK) A Smart Pick For Income Investors?

Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. Lookers plc (LON:LOOK) has returned to shareholders over the past 10 years, an average dividend yield of 3.00% annually. Does Lookers tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.

View our latest analysis for Lookers

5 questions I ask before picking a dividend stock

If you are a dividend investor, you should always assess these five key metrics:

• 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?

• Does earnings amply cover its dividend payments?

• Will it have the ability to keep paying its dividends going forward?

LSE:LOOK Historical Dividend Yield August 15th 18

How does Lookers fare?

The current trailing twelve-month payout ratio for the stock is 32.27%, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect LOOK’s payout to remain around the same level at 29.54% of its earnings, which leads to a dividend yield of 4.00%. Furthermore, EPS should increase to £0.12.

If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. Dividend payments from Lookers have been volatile in the past 10 years, with some years experiencing significant drops of over 25%. These characteristics do not bode well for income investors seeking reliable stream of dividends.

Relative to peers, Lookers produces a yield of 3.71%, which is high for Specialty Retail stocks but still below the market’s top dividend payers.

Next Steps:

If you are building an income portfolio, then Lookers 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 recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. There are three relevant factors you should further research:

1. Future Outlook: What are well-informed industry analysts predicting for LOOK’s future growth? Take a look at our free research report of analyst consensus for LOOK’s outlook.

2. Valuation: What is LOOK 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 LOOK is currently mispriced by the market.

3. 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 editorial-team@simplywallst.com.