A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. Mahanagar Gas Limited (NSE:MGL) has paid a dividend to shareholders in the last few years. It currently yields 2.0%. Should it have a place in your portfolio? Let’s take a look at Mahanagar Gas in more detail.
5 questions to ask before buying a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Is their annual yield among the top 25% 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 is able to pay the current rate of dividends from its earnings?
- Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
How well does Mahanagar Gas fit our criteria?
The current trailing twelve-month payout ratio for the stock is 27%, which means that the dividend is covered by earnings. In the near future, analysts are predicting a higher payout ratio of 44% which, assuming the share price stays the same, leads to a dividend yield of around 2.6%. In addition to this, EPS should increase to ₹60.5. The higher payout forecasted, along with higher earnings, should lead to greater dividend income for investors 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. The reality is that it is too early to consider Mahanagar Gas as a dividend investment. It has only been consistently paying dividends for 3 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
Compared to its peers, Mahanagar Gas generates a yield of 2.0%, which is high for Gas Utilities stocks.
Taking into account the dividend metrics, Mahanagar Gas 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, 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. Below, I’ve compiled three fundamental factors you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for MGL’s future growth? Take a look at our free research report of analyst consensus for MGL’s outlook.
- Valuation: What is MGL 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 MGL 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.
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.