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A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. Historically, Bodegas Riojanas SA (BME:RIO) has paid dividends to shareholders, and these days it yields 2.4%. Does Bodegas Riojanas tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.

See our latest analysis for Bodegas Riojanas

5 checks you should use to assess a dividend stock

When researching a dividend stock, I always follow the following screening criteria:

• Is it the top 25% annual dividend yield payer?

• Does it consistently pay out dividends without missing a payment of significantly cutting payout?

• Has dividend per share risen in the past couple of years?

• Is is able to pay the current rate of dividends from its earnings?

• Will it have the ability to keep paying its dividends going forward?

Does Bodegas Riojanas pass our checks?

The current trailing twelve-month payout ratio for RIO is 116%, which means that the dividend is not well-covered by its earnings. Furthermore, analysts have not forecasted a dividends per share for the future, which makes it hard to determine the yield shareholders should expect, and whether the current payout is sustainable, moving forward.

When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.

If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. Not only have dividend payouts from Bodegas Riojanas fallen over the past 10 years, it has also been highly volatile during this time, with drops of over 25% in some years. This means that dividend hunters should probably steer clear of the stock, at least for now until the track record improves.

Compared to its peers, Bodegas Riojanas generates a yield of 2.4%, which is on the low-side for Beverage stocks.

Next Steps:

After digging a little deeper into Bodegas Riojanas’s yield, it’s easy to see why you should be cautious investing in the company just for the dividend. On the other hand, if you are not strictly just a dividend investor, the stock could still be offering 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. There are three relevant factors you should look at: