Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. Historically, ESSA Bancorp Inc ( NASDAQ:ESSA ) has paid dividends to shareholders, and these days it yields 2.2%. Let’s dig deeper into whether ESSA Bancorp should have a place in your portfolio.
5 checks you should use to assess a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
- Is its annual yield among the top 25% of dividend-paying companies?
- Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
- Has dividend per share risen in the past couple of years?
- 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 ESSA Bancorp fit our criteria?
The company currently pays out 60% 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.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow . Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. ESSA has increased its DPS from $0.16 to $0.36 in the past 10 years. It has also been paying out dividend consistently during this time, as you’d expect for a company increasing its dividend levels. This is an impressive feat, which makes ESSA a true dividend rockstar.
In terms of its peers, ESSA Bancorp produces a yield of 2.2%, which is on the low-side for Mortgage stocks.
With this in mind, I definitely rank ESSA Bancorp as a strong dividend stock, and makes it worth further research for anyone who likes steady income generation from their 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. I’ve put together three important factors you should further examine:
- Future Outlook : What are well-informed industry analysts predicting for ESSA’s future growth? Take a look at our free research report of analyst consensus for ESSA’s outlook.
- Valuation : What is ESSA 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 ESSA is currently mispriced by the market.
- 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 firstname.lastname@example.org .