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What To Know Before Buying The Colonial Motor Company Limited (NZSE:CMO) 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, The Colonial Motor Company Limited (NZSE:CMO) has paid a dividend to shareholders. It currently yields 6.0%. Let’s dig deeper into whether Colonial Motor should have a place in your portfolio.

See our latest analysis for Colonial Motor

5 checks you should do on a dividend stock

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

  • Is it the top 25% annual dividend yield payer?

  • 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?

  • Does earnings amply cover its dividend payments?

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

NZSE:CMO Historical Dividend Yield November 29th 18
NZSE:CMO Historical Dividend Yield November 29th 18

How well does Colonial Motor fit our criteria?

The company currently pays out 65% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is covered by earnings. Furthermore, analysts have not forecasted a dividends per share for the future, which makes it hard to determine the yield shareholders should expect, and whether the current payout is sustainable, moving forward.

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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. 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. Shareholders would have seen a few years of reduced payments in this time.

In terms of its peers, Colonial Motor generates a yield of 6.0%, which is on the low-side for Specialty Retail stocks.

Next Steps:

Taking into account the dividend metrics, Colonial Motor ticks most of the boxes as a strong dividend investment, putting it in my list of top dividend payers. 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 further research:

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

  2. Historical Performance: What has CMO’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.

  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.