A sizeable part of portfolio returns can be produced by dividend stocks due to their contribution to compounding returns in the long run. ICICI Prudential Life Insurance Company Limited (NSE:ICICIPRULI) has recently paid dividends to shareholders, and currently yields 1.5%. Should it have a place in your portfolio? Let’s take a look at ICICI Prudential Life Insurance in more detail.
5 checks you should do on a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
- 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 risen in the past couple of years?
- Does earnings amply cover its dividend payments?
- Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
Does ICICI Prudential Life Insurance pass our checks?
The company currently pays out 59% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is covered by earnings. However, going forward, analysts expect ICICIPRULI’s payout to fall to 39% of its earnings. Assuming a constant share price, this equates to a dividend yield of 1.5%. However, EPS should increase to ₹11.42, 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. 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. The reality is that it is too early to consider ICICI Prudential Life Insurance as a dividend investment. It has only been consistently paying dividends for 2 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
In terms of its peers, ICICI Prudential Life Insurance produces a yield of 1.5%, which is high for Insurance stocks but still below the market’s top dividend payers.
If you are building an income portfolio, then ICICI Prudential Life Insurance is a complicated choice since it has some positive aspects as well as negative ones. However, if you are not strictly just a dividend investor, the stock could still offer some interesting investment opportunities. 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 key aspects you should look at:
- Future Outlook: What are well-informed industry analysts predicting for ICICIPRULI’s future growth? Take a look at our free research report of analyst consensus for ICICIPRULI’s outlook.
- Valuation: What is ICICIPRULI 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 ICICIPRULI is currently mispriced by the market.
- 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 email@example.com. 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.