Value investor often look into those 11 creteria when evluating a dividend stock:
Criterion #1: Credit Rating Look for stocks with a grade of B+ or higher ( Moody’s www.moodys.com and Standard and Poor’s www.standardandpoors.com)
ENIA passed with its Baa3 rating. See the news below:
New York, December 19, 2019 — Moody’s Investors Service (“Moody’s“) today changed to positive from stable the outlook on Enel Américas S.A. (ENIA). Moody’s also affirmed the ‘Baa3‘ senior unsecured rating of ENIA.Dec 19, 2019
Criterion #2: Cash Flow Assessment
A strong cash flow allows a company to scale its operations and develop innovative products. It provides the means to fund dividend payouts . We look for Net Income growing at 5-10% per year (from Income Statement) – we also prefer stable or growing Operating Cash flow (From Cash Flow Statement).
We may use financial data from morningstar.
ENIA:
Net Income:
| 2017 | 2018 | 2019 | TTM | 3-Yr Trend |
|---|---|---|---|---|
| 0.71 | 1.20 | 1.61 | 1.61 | Increase every year |
Operating cash flow: ?
Not found in morning star for the last 3 years somehow.
Criterion #3: Cash & Cash Equivalents
We prefer a company with consistent growth in cash and cash equivalents, as seen from Balance Sheets from financial web sites such as morning star.
ENIA:
| 2017 | 2018 | 2019 | Q4 2019 |
|---|---|---|---|
| 1.58 | 2.05 | 2.04 | 2.04 |
Criterion #4: Debt Repayment Capacity
We prefer a company with a debt coverage ratio of at least 3:1.
We can use data from morning star.
debt coverage ratio = Net Income / (Interest Expenses + Other Payments)
Other payments could be principle, sinking, lease payments etc.
Interest Coverage is another ratio similar to debt coverage ratio above. The ratio is calculated by dividing a company’s earnings before interest and taxes (EBIT) by the company’s interest expenses for the same period.
Per WSJ, as of 09/11/2020, ENIA’s Interest Coverage is 3.29. PASSED.
https://www.wsj.com/market-data/quotes/ENIA/financials
Criterion #5: Management Performance
Read company reports as well as analyst reports. Understand its management team. Know the company’s long term growth and expansion plans.
ENIA: Recent quarterly call transcripts:
https://seekingalpha.com/symbol/ENIA/earnings/transcripts
Criterion #6: Current Dividend Yield
It should be at least 4% or 5%. ENIA: 12.51% (Paid Semiannually)
Criterion #7: Dividend Growth Rate
It should be at least 5%. Check out dividend.com and know the company’s dividend policy. ENIA: 5 years: 4.60%
Criterion #8: Dividend Payout Ratio
It should be less than 60% (check out dividend.com). Otherwise it cannot fund its growth.
Payout ratio of 60%-70% is acceptable only if its dividend yield is compelling (8-10%). Considering selling it if its payout ratio is too high.
ENIA Dividend Payout Ratio:
59.77%, PASSED (Based on Cash Flow, https://www.marketbeat.com/stocks/NYSE/ENIA/dividend/)
But other sites are showing different numbers:
122.43% (FWD PAYOUT RATIO, https://www.dividend.com/dividend-stocks/utilities/electric-utilities/enia-enersis-americashttps://www.marketbeat.com/stocks/NYSE/ENIA/dividend/-sa/#tm=3-ticker-best-div-capture&r=ES%3A%3ADividendStock%3A%3AStock%23ENIA–NYSE&f_28=true&only=meta%2Cdata%2Cthead)
114.03% – FAIL ??? (https://seekingalpha.com/symbol/ENIA/dividends/dividend-safety)
Criterion #9: ROE
ROE for the last 3 or more years is 12% or higher.
TTM ROE is at least 15%. Use financial data from morningstar/Key Ratios/Profitability.
During the past 13 years, Enel Americas/ENIA’s highest ROE % was 19.87%. The lowest was 7.46%. And the median was 11.22%. (https://www.gurufocus.com/term/ROE/NYSE:ENIA/ROE–ttm/Enel-Americas)
Enel Americas/ENIA’s return on equity, or ROE TTM, is 11.16% , as of 9/11/2020 (https://www.zacks.com/stock/chart/ENIA/fundamental/return-on-equity-ttm).
Criterion #10: Insider Activity
Buy when insiders are holding or buying more shares. Data can be extracted from:
a. Morningstar/Insiders/Insider Activity
b. Yahoo Finance/Insider Transactions
c. Zacks.com/More Research/Insiders
ENIA: No inside activities for the last 6 months: https://in.finance.yahoo.com/quote/ENIA/insider-transactions/
Criterion #11: Intrinsic value
Buy at or below its instrinsic value because your performance is determined not only by dividends but also capital appreciation.
ENIA: $10.66, current price $7.21 USD as of 09/11/2020. PASSED.
as of
| 12/31/2019 | 10.658 |
Thanks, Otilia Leane for dengsoft.com