Is Tatton Asset Management plc (LON:TAM) An Attractive Dividend Stock?
Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. Recently, Tatton Asset Management plc (LON:TAM) has started paying dividends to shareholders. Today it yields 3.2%. Does Tatton Asset Management tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
View our latest analysis for Tatton Asset Management
How I analyze a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
Does it pay an annual yield higher than 75% of dividend payers?
Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
Has it increased its dividend per share amount over the past?
Does earnings amply cover its dividend payments?
Will the company be able to keep paying dividend based on the future earnings growth?
Does Tatton Asset Management pass our checks?
Tatton Asset Management has a trailing twelve-month payout ratio of 151%, which means that the dividend is not well-covered by its earnings. In the near future, analysts are predicting a more sensible payout ratio of 70.1%, leading to a dividend yield of around 3.2%.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
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. Unfortunately, it is really too early to view Tatton Asset Management as a dividend investment. Last year was the company’s first dividend payment, so it is certainly early days. The standard practice for reliable payers is to look for 10 or so years of track record.
In terms of its peers, Tatton Asset Management generates a yield of 3.2%, which is high for Capital Markets stocks but still below the market’s top dividend payers.
Next Steps:
After digging a little deeper into Tatton Asset Management’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. Below, I’ve compiled three relevant factors you should look at:
Future Outlook: What are well-informed industry analysts predicting for TAM’s future growth? Take a look at our free research report of analyst consensus for TAM’s outlook.
Valuation: What is TAM 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 TAM 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 editorial-team@simplywallst.com.
