Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. Historically, ECE Industries Limited (NSE:ECEIND) has paid a dividend to shareholders. It currently yields 1.1%. Let’s dig deeper into whether ECE Industries should have a place in your portfolio.
5 checks you should use to assess a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Is it paying an annual yield above 75% of dividend payers?
- Has it paid dividend every year without dramatically reducing payout in the past?
- Has it increased its dividend per share amount over the past?
- Is its earnings sufficient to payout dividend at the current rate?
- Will the company be able to keep paying dividend based on the future earnings growth?
How does ECE Industries fare?
The company currently pays out 3.6% of its earnings as a dividend, according to its trailing twelve-month data, 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 assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. Not only have dividend payouts from ECE Industries fallen over the past 10 years, it has also been highly volatile during this time, with drops of over 25% in some years. These characteristics do not bode well for income investors seeking reliable stream of dividends.
Relative to peers, ECE Industries generates a yield of 1.1%, which is on the low-side for Electrical stocks.
After digging a little deeper into ECE Industries’s yield, it’s easy to see why you should be cautious investing in the company just for the dividend. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. 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. I’ve put together three key factors you should look at:
- Future Outlook: What are well-informed industry analysts predicting for ECEIND’s future growth? Take a look at our free research report of analyst consensus for ECEIND’s outlook.
- Historical Performance: What has ECEIND’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- 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 firstname.lastname@example.org.