Investors in Webjet Limited (ASX:WEB) should take note of this data

A significant portion of portfolio returns can be produced by dividend stocks due to their contribution to long-term compound returns. Historically, Webjet Limited (ASX: WEB) has paid a dividend to shareholders. It currently yields 1.2%. Let’s take a closer look at whether Webjet should have a place in your portfolio.

Check out our latest analysis for Webjet

5 Questions I Ask Before Choosing a Dividend Stock

When evaluating a stock as a potential addition to my dividend portfolio, I look at these five areas:

• Is their annual yield in the top 25% of dividend payers?

• Has it paid dividends every year without reducing them significantly in the past?

• Has the amount of dividend per share increased in the past?

• Are its profits enough to distribute dividends at the current rate?

• Will it have the capacity to continue paying its dividends in the future?

How well does Webjet meet our criteria?

Webjet has a trailing twelve-month payout ratio of 55.5%, meaning the dividend is covered by earnings. However, going forward, analysts expect WEB’s dividend to fall to 42.7% of its earnings, which would result in a dividend yield of around 2.1%. However, EPS is expected to increase to AUD 0.56, meaning the lower payout ratio does not necessarily imply a lower dividend payment.

When considering whether a dividend is sustainable, another factor to consider is cash flow. Cash flow is important because companies with strong cash flow can generally maintain higher payout ratios.

If there’s one type of stock you want to be reliable on, it’s dividend stocks and their stable ability to generate income. Not only have Webjet’s dividend payments fallen over the past 10 years, but they have also been very volatile during that time, with drops of more than 25% in some years. That means dividend hunters should probably avoid these stocks, at least for now, until the track record improves.

Compared to its peers, Webjet yields 1.2%, which is on the low side for online retail stocks.

Next steps:

Now you know something to keep in mind why investors should be careful while investing in Webjet for the dividend. But if you’re not exclusively a dividend investor, the stock could still be an attractive investment opportunity. Since this is a dividend analysis only, I urge potential investors to try to fully understand the underlying business and its fundamentals before deciding on an investment. Below, I’ve compiled three key aspects you should research further:

1. Future prospects: What do knowledgeable industry analysts predict for WEB’s future growth? Take a look at our free analyst consensus research report for WEB’s outlook.

2. Assessment: What is the WEB 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 WEB is currently mispriced by the market.

3. Dividend Rockstars: Are there better dividend payers with stronger fundamentals? Check out our free list of these great titles here.

To help readers see beyond the short-term volatility of the financial market, we aim to bring you focused long-term research analysis based solely on fundamental data. Note that our analysis does not take into account the latest announcements from price-sensitive companies.

The author is an independent contributor and, at the time of publication, had no position in any stocks mentioned. For errors that require correction, please contact the editor at [email protected].