Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. Historically, NagaCorp Ltd. (HKG:3918) has paid dividends to shareholders, and these days it yields 3.0%. Let’s dig deeper into whether NagaCorp should have a place in your portfolio.

See our latest analysis for NagaCorp

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Here’s how I find good dividend stocks

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 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 does NagaCorp fare?

NagaCorp has a trailing twelve-month payout ratio of 57%, which means that the dividend is covered by earnings. In the near future, analysts are predicting a payout ratio of 57% which, assuming the share price stays the same, leads to a dividend yield of around 4.4%. Moreover, EPS should increase to $0.087.

When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.

If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. Although 3918’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.

Compared to its peers, NagaCorp produces a yield of 3.0%, which is on the low-side for Hospitality stocks.

Next Steps:

With these dividend metrics in mind, I definitely rank NagaCorp as a strong income stock, and is worth further research for anyone who considers dividends an important part of their portfolio strategy. 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 examine:

1. Future Outlook: What are well-informed industry analysts predicting for 3918’s future growth? Take a look at our free research report of analyst consensus for 3918’s outlook.

2. Valuation: What is 3918 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 3918 is currently mispriced by the market.

3. 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.