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A sizeable part of portfolio returns can be produced by dividend stocks due to their contribution to compounding returns in the long run. Historically, Mphasis Limited (NSE:MPHASIS) has paid a dividend to shareholders. It currently yields 1.9%. Does Mphasis tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.

View our latest analysis for Mphasis

5 checks you should use to assess a dividend stock

When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:

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

• Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?

• Has the amount of dividend per share grown over the past?

• Does earnings amply cover its dividend payments?

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

Does Mphasis pass our checks?

Mphasis has a trailing twelve-month payout ratio of 37%, which means that the dividend is covered by earnings. In the near future, analysts are predicting a higher payout ratio of 43% which, assuming the share price stays the same, leads to a dividend yield of 2.7%. In addition to this, EPS should increase to ₹62.07. The higher payout forecasted, along with higher earnings, should lead to greater dividend income for investors moving forward.

If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider the cash flow of the business. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.

If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. Whilst its per-share payments have increased during the past 10 years, there has been some hiccups. Shareholders would have seen a few years of reduced payments in this time.

Relative to peers, Mphasis produces a yield of 1.9%, which is high for IT stocks but still below the market’s top dividend payers.

Next Steps:

With these dividend metrics in mind, I definitely rank Mphasis 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 MPHASIS’s future growth? Take a look at our free research report of analyst consensus for MPHASIS’s outlook.

2. Valuation: What is MPHASIS 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 MPHASIS 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.

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 editorial-team@simplywallst.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.