Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. Historically, CDW Corporation ( NASDAQ:CDW ) has paid dividends to shareholders, and these days it yields 1.3%. Let’s dig deeper into whether CDW should have a place in your portfolio.
Here’s how I find good dividend stocks
If you are a dividend investor, you should always assess these five key metrics:
- Is it paying an annual yield above 75% of dividend payers?
- Has it paid dividend every year without dramatically reducing payout in the past?
- 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?
Does CDW pass our checks?
The current trailing twelve-month payout ratio for the stock is 19%, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect CDW’s payout to remain around the same level at 20% of its earnings, which leads to a dividend yield of around 1.1%. Moreover, EPS is forecasted to fall to $4.37 in the upcoming year.
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. The reality is that it is too early to consider CDW 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, CDW generates a yield of 1.3%, which is on the low-side for Electronic stocks.
After digging a little deeper into CDW’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 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 important factors you should look at:
- Future Outlook : What are well-informed industry analysts predicting for CDW’s future growth? Take a look at our free research report of analyst consensus for CDW’s outlook.
- Valuation : What is CDW 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 CDW 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 .
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 email@example.com .