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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, R STAHL AG (FRA:RSL2) has paid a dividend to shareholders. It currently yields 2.3%. Let’s dig deeper into whether R. STAHL should have a place in your portfolio.

See our latest analysis for R. STAHL

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:

• Does it pay an annual yield higher than 75% of dividend payers?

• Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?

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

• Is its earnings sufficient to payout dividend at the current rate?

• Will the company be able to keep paying dividend based on the future earnings growth?

Does R. STAHL pass our checks?

R. STAHL has a negative payout ratio, which means that it is loss-making, and paying its dividend from its retained earnings.

When considering the sustainability of dividends, it is also worth checking the cash flow of a company. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.

If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. Dividend payments from R. STAHL have been volatile in the past 10 years, with some years experiencing significant drops of over 25%. This means that dividend hunters should probably steer clear of the stock, at least for now until the track record improves.

In terms of its peers, R. STAHL produces a yield of 2.3%, which is high for Machinery stocks but still below the market’s top dividend payers.

Next Steps:

Now you know to keep in mind the reason why investors should be careful investing in R. STAHL 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 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 fundamental aspects you should further research:

1. Future Outlook: What are well-informed industry analysts predicting for RSL2’s future growth? Take a look at our free research report of analyst consensus for RSL2’s outlook.

2. Valuation: What is RSL2 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 RSL2 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.