A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. Historically, Munjal Auto Industries Limited (NSE:MUNJALAU) has been paying a dividend to shareholders. Today it yields 2.1%. Let's dig deeper into whether Munjal Auto Industries should have a place in your portfolio.
How I analyze a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
- Is their annual yield among the top 25% of dividend payers?
- 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?
- Will it have the ability to keep paying its dividends going forward?
Does Munjal Auto Industries pass our checks?
Munjal Auto Industries has a trailing twelve-month payout ratio of 36%, which means that the dividend is covered by earnings. Furthermore, analysts have not forecasted a dividends per share for the future, which makes it hard to determine the yield shareholders should expect, and whether the current payout is sustainable, moving forward.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.
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. Whilst its per-share payments have increased during the past 10 years, there has been some hiccups. Investors have seen reductions in the dividend per share in the past, although, it has picked up again.
Relative to peers, Munjal Auto Industries generates a yield of 2.1%, which is high for Auto Components stocks.
With these dividend metrics in mind, I definitely rank Munjal Auto Industries as a strong income stock, and is worth further research for anyone who considers dividends an important part of their portfolio strategy. 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 key factors you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for MUNJALAU’s future growth? Take a look at our free research report of analyst consensus for MUNJALAU’s outlook.
- Valuation: What is MUNJALAU 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 MUNJALAU is currently mispriced by the market.
- Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
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