Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. Fonterra Co-operative Group Limited (NZSE:FCG) has returned to shareholders over the past 5 years, an average dividend yield of 5.00% annually. Let’s dig deeper into whether Fonterra Co-operative Group should have a place in your portfolio. See our latest analysis for Fonterra Co-operative Group
5 questions to ask before buying a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
- Is it the top 25% annual dividend yield payer?
- Does it consistently pay out dividends without missing a payment of significantly cutting payout?
- Has the amount of dividend per share grown 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?
How well does Fonterra Co-operative Group fit our criteria?
Fonterra Co-operative Group has a negative payout ratio, meaning that the company is not yet profitable and is paying dividend by dipping into its retained earnings.
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. The reality is that it is too early to consider Fonterra Co-operative Group as a dividend investment. It has only been consistently paying dividends for 5 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
In terms of its peers, Fonterra Co-operative Group generates a yield of 7.87%, which is high for Food stocks.
After digging a little deeper into Fonterra Co-operative Group’s yield, it’s easy to see why you should be cautious investing in the company just 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, 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 key factors you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for FCG’s future growth? Take a look at our free research report of analyst consensus for FCG’s outlook.
- Historical Performance: What has FCG’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.
- 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 pass 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.