Is Steelcase Inc (NYSE:SCS) A Smart Choice For Dividend Investors?
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, Steelcase Inc (NYSE:SCS) has paid dividends to shareholders, and these days it yields 3.3%. Does Steelcase tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
Check out our latest analysis for Steelcase
How I analyze 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?
Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
Has dividend per share risen in the past couple of years?
Can it afford to pay the current rate of dividends from its earnings?
Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
How well does Steelcase fit our criteria?
The current trailing twelve-month payout ratio for the stock is 68%, which means that the dividend is covered by earnings. In the near future, analysts are predicting lower payout ratio of 42%, leading to a dividend yield of around 3.7%. However, EPS should increase to $1.2, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
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. Dividend payments from Steelcase have been volatile in the past 10 years, with some years experiencing significant drops of over 25%. These characteristics do not bode well for income investors seeking reliable stream of dividends.
In terms of its peers, Steelcase generates a yield of 3.3%, which is high for Commercial Services stocks but still below the market’s top dividend payers.
Next Steps:
Taking all the above into account, Steelcase is a complicated pick for dividend investors given that there are a couple of positive things about it as well as negative. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. 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 fundamental factors you should look at:
Future Outlook: What are well-informed industry analysts predicting for SCS’s future growth? Take a look at our free research report of analyst consensus for SCS’s outlook.
Valuation: What is SCS 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 SCS 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.
