A sizeable part of portfolio returns can be produced by dividend stocks due to their contribution to compounding returns in the long run. Dhunseri Tea & Industries Limited (NSE:DHUNTEAIND) has paid a dividend to shareholders in the last few years. It currently yields 3.2%. Let’s dig deeper into whether Dhunseri Tea & Industries should have a place in your portfolio.

See our latest analysis for Dhunseri Tea & Industries

5 questions to ask before buying a dividend stock

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

• Is it paying an annual yield above 75% of dividend payers?

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

• Has it increased its dividend per share amount over the past?

• Can it afford to pay the current rate of dividends from its earnings?

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

Does Dhunseri Tea & Industries pass our checks?

The company currently pays out 19% of its earnings as a dividend, according to its trailing twelve-month data, meaning the dividend is sufficiently covered by 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 assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.

Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. Unfortunately, it is really too early to view Dhunseri Tea & Industries as a dividend investment. It has only been consistently paying dividends for 4 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.

Relative to peers, Dhunseri Tea & Industries generates a yield of 3.2%, which is high for Food stocks.

Next Steps:

Taking all the above into account, Dhunseri Tea & Industries is a complicated pick for dividend investors given that there are a couple of positive things about it as well as negative. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. 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. I’ve put together three essential factors you should look at:

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

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

3. 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.