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, Blue Star Limited (NSE:BLUESTARCO) has been paying a dividend to shareholders. Today it yields 1.7%. Should it have a place in your portfolio? Let’s take a look at Blue Star in more detail.
5 questions I ask before picking a dividend stock
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
- Does it pay an annual yield higher than 75% of dividend payers?
- Has it paid dividend every year without dramatically reducing payout in the past?
- Has dividend per share risen in the past couple of years?
- Is its earnings sufficient to payout dividend at the current rate?
- Will it be able to continue to payout at the current rate in the future?
How does Blue Star fare?
The current trailing twelve-month payout ratio for the stock is 50%, meaning the dividend is sufficiently covered by earnings. However, going forward, analysts expect BLUESTARCO’s payout to fall to 41% of its earnings, which leads to a dividend yield of around 1.9%. However, EPS should increase to ₹18.68, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. 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. 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.
In terms of its peers, Blue Star produces a yield of 1.7%, which is high for Building stocks but still below the market’s top dividend payers.
Considering the dividend attributes we analyzed above, Blue Star is definitely worth keeping an eye on for someone looking to build a dedicated income portfolio. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. I’ve put together three relevant aspects you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for BLUESTARCO’s future growth? Take a look at our free research report of analyst consensus for BLUESTARCO’s outlook.
- Valuation: What is BLUESTARCO 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 BLUESTARCO 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.
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 email@example.com.