Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. Over the past 4 years, OFX Group Limited (ASX:OFX) has returned an average of 3.00% per year to shareholders in terms of dividend yield. Let’s dig deeper into whether OFX Group should have a place in your portfolio. View our latest analysis for OFX Group

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?

• Has it paid dividend every year without dramatically reducing payout in the past?

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

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

• Will it be able to continue to payout at the current rate in the future?

Does OFX Group pass our checks?

The current trailing twelve-month payout ratio for the stock is 69.87%, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect OFX’s payout to remain around the same level at 71.68% of its earnings, which leads to a dividend yield of 4.40%. In addition to this, EPS should increase to A$0.09. If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. Unfortunately, it is really too early to view OFX Group 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. In terms of its peers, OFX Group produces a yield of 3.79%, which is on the low-side for Diversified Financial stocks.

Next Steps:

Taking all the above into account, OFX Group is a complicated pick for dividend investors given that there are a couple of positive things about it as well as negative. However, if you are not strictly just a dividend investor, the stock could still offer some interesting investment opportunities. 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. There are three fundamental aspects you should look at:

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

• Valuation: What is OFX 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 OFX is currently mispriced by the market.

• 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 pass 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.