The only way to live a worry-free retirement these days is to have steady streams of income coming in, month after month.
Without income you can count on, you're dependent on your retirement annuity to get by. And that's not a spot you want to be in…
That's why, part of my job as Real Wealth editor, is to find investments that consistently pay investors dividends - as well as - investments that may be “dividend traps”.
Today's investment that I'm going to analyse, is retail giant Clicks Group.
Clicks has a stellar track-record of increasing its dividends.
But can the company continue to achieve this over the long-term?
The answer lies in these three simple charts….
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#1: Consistency of dividend pay-outs
The company paid investors 61c per share a decade ago. Over the last 10 years, the dividend has climbed to 380c. That’s a massive 523% increase!
You can see the annual changes below…
The compound annual growth is around 20% over 10 years. This increase in dividend growth is a good sign of consistency.
In fact, Clicks recently increased its 2019 interim dividend by 15.1% from 102.5c to 118c. I’m willing to bet that the group will grow its full year dividend by double digits again.
#2: Current dividend yield vs 10-year average
Clicks long history of paying dividends – in my mind – makes it one of the best dividend stocks around. This also makes the dividend yield a great indicator of value. A higher yield is generally better for buyers.
The chart below shows Clicks current yield of 2.15% and that’s below the 10-year average (black line) of 2.84%.
The lower yield shows that investors have bid up the company’s market value. Why?
Well investors might be expecting higher growth and pay-outs from Clicks, in the future.
Lastly, one of the most vital points is to check the sustainability of Clicks’ dividend.
#3: Dividend safety check
Many investors look at the pay-out ratio to determine dividend safety. A low pay-out ratio can signal that a company is reinvesting the bulk of its earnings into growing the business.
A pay-out ratio over 100% indicates that the company is paying out more in dividends than it is earning.
There are a few ways to calculate the pay-out ratio.
One way is to take the company’s dividend per share and divided by its earnings per share. So, a pay-out ratio of 60% would mean that for every R1 a company earns, it pays investors 60c.
The pay-out ratio is a good indicator of dividend safety and sustainability. Below shows Clicks’ pay-out ratio over the last 10 years…
What you can take-away from this chart, is Clicks usually pays around 50%-60% of its earnings to shareholders in the form of dividends. This shows, investors are receiving a slice of the company’s profits which is a good sign.
What’s more, while the pay-out ratio has steadily increased over the past decade, it’s still not at unsustainable levels.
This gives plenty of wiggle room for Clicks management to raise its dividend in the future. And this is the reason why Clicks has made it into my special report - Retire Rich with Dividends.
See you next week,
Managing Editor, Real Wealth
If you want to discover other companies that will generate you a large, but safe and steady stream of income for a lifetime, then grab a copy of Retire Rich with Dividends