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, Persistent Systems Limited (NSE:PERSISTENT) has paid dividends to shareholders, and these days it yields 1.7%. Should it have a place in your portfolio? Let’s take a look at Persistent Systems 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:
- Does it pay an annual yield higher than 75% of dividend payers?
- Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
- Has it increased its dividend per share amount 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?
Does Persistent Systems pass our checks?
The current trailing twelve-month payout ratio for the stock is 26%, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect PERSISTENT’s payout to remain around the same level at 28% of its earnings. Assuming a constant share price, this equates to a dividend yield of around 2.2%. In addition to this, EPS should increase to ₹51.35.
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.
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. Unfortunately, it is really too early to view Persistent Systems as a dividend investment. It has only been consistently paying dividends for 9 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
Compared to its peers, Persistent Systems generates a yield of 1.7%, which is high for IT stocks but still below the market’s top dividend payers.
If Persistent Systems is in your portfolio for cash-generating reasons, there may be better alternatives out there. 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 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 important aspects you should further research:
- Future Outlook: What are well-informed industry analysts predicting for PERSISTENT’s future growth? Take a look at our free research report of analyst consensus for PERSISTENT’s outlook.
- Valuation: What is PERSISTENT 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 PERSISTENT 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 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.