Does Skellerup Holdings Limited (NZSE:SKL) Have A Place In Your Portfolio?

Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. Historically, Skellerup Holdings Limited (NZSE:SKL) has been paying a dividend to shareholders. Today it yields 5.3%. Does Skellerup Holdings tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.

See our latest analysis for Skellerup Holdings

5 checks you should do on a dividend stock

When researching a dividend stock, I always follow the following screening criteria:

• Is it paying an annual yield above 75% of dividend payers?

• Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?

• Has it increased its dividend per share amount over the past?

• 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?

NZSE:SKL Historical Dividend Yield October 25th 18

How well does Skellerup Holdings fit our criteria?

Skellerup Holdings has a trailing twelve-month payout ratio of 78%, which means that the dividend is covered by earnings. Going forward, analysts expect SKL’s payout to remain around the same level at 77% of its earnings, which leads to a dividend yield of 6.3%. In addition to this, EPS should increase to NZ$0.15.

When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.

If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. Whilst its per-share payments have increased during the past 10 years, there has been some hiccups. Investors have seen reductions in the dividend per share in the past, although, it has picked up again.

Compared to its peers, Skellerup Holdings has a yield of 5.3%, which is high for Machinery stocks but still below the market’s top dividend payers.

Next Steps:

Keeping in mind the dividend characteristics above, Skellerup Holdings is definitely worth considering for investors looking to build a dedicated income 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. There are three essential factors you should look at:

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

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

3. Other 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.