A sizeable part of portfolio returns can be produced by dividend stocks due to their contribution to compounding returns in the long run. Shanti Overseas (India) Limited (NSE:SHANTI) has started paying a dividend to shareholders. It currently trades on a yield of 1.6%. Does Shanti Overseas (India) tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.

View our latest analysis for Shanti Overseas (India)

5 questions I ask before picking a dividend stock

If you are a dividend investor, you should always assess these five key metrics:

• 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?

• Does earnings amply cover its dividend payments?

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

Does Shanti Overseas (India) pass our checks?

The current trailing twelve-month payout ratio for the stock is 7.1%, which means that the dividend is 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 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 dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. Unfortunately, it is really too early to view Shanti Overseas (India) as a dividend investment. It has only been paying out dividend for the past one year. Generally, the rule of thumb for determining whether a stock is a reliable dividend payer is that it should be consistently paying dividends for the past 10 years or more. Clearly there’s a long road ahead before we can ascertain whether SHANTI one as a stable dividend player.

Relative to peers, Shanti Overseas (India) has a yield of 1.6%, which is high for Food stocks.

Next Steps:

Whilst there are few things you may like about Shanti Overseas (India) from a dividend stock perspective, the truth is that overall it probably is not the best choice for a dividend investor. 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, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. Below, I’ve compiled three relevant factors you should look at:

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

2. Historical Performance: What has SHANTI’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.

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.