A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. Historically, Jain Irrigation Systems Limited (NSE:JISLDVREQS) has been paying a dividend to shareholders. Today it yields 1.5%. Let’s dig deeper into whether Jain Irrigation Systems should have a place in your portfolio.
View our latest analysis for Jain Irrigation Systems
5 questions to ask before buying a dividend stock
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
- Is it paying an annual yield above 75% of dividend payers?
- Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
- Has dividend per share amount increased over the past?
- Is its earnings sufficient to payout dividend at the current rate?
- Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
How well does Jain Irrigation Systems fit our criteria?
Jain Irrigation Systems has a trailing twelve-month payout ratio of 19%, which means that the dividend is covered by earnings. However, going forward, analysts expect JISLDVREQS’s payout to fall to 17% of its earnings. Assuming a constant share price, this equates to a dividend yield of 1.9%. However, EPS should increase to ₹7.55, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
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.
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. Although JISLDVREQS’s per share payments have increased in the past 10 years, it has not been a completely smooth ride. Investors have seen reductions in the dividend per share in the past, although, it has picked up again.
Relative to peers, Jain Irrigation Systems produces a yield of 1.5%, which is high for Machinery stocks but still below the market’s top dividend payers.
Next Steps:
Taking into account the dividend metrics, Jain Irrigation Systems ticks most of the boxes as a strong dividend investment, putting it in my list of top dividend payers. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. I’ve put together three important factors you should further research:
- Future Outlook: What are well-informed industry analysts predicting for JISLDVREQS’s future growth? Take a look at our free research report of analyst consensus for JISLDVREQS’s outlook.
- Valuation: What is JISLDVREQS 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 JISLDVREQS 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 editorial-team@simplywallst.com.