Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. In the last few years Vardhman Acrylics Limited (NSE:VARDHACRLC) has paid a dividend to shareholders. Today it yields 4.4%. Does Vardhman Acrylics tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.

View our latest analysis for Vardhman Acrylics

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5 questions I ask before picking 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 the amount of dividend per share grown over the past?

• Does earnings amply cover its dividend payments?

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

How well does Vardhman Acrylics fit our criteria?

The current trailing twelve-month payout ratio for the stock is 34%, 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 thinking about whether a dividend is sustainable, another factor to consider is the cash flow. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.

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 Vardhman Acrylics as a dividend investment. It has only been consistently paying dividends for 3 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.

Relative to peers, Vardhman Acrylics has a yield of 4.4%, which is high for Luxury stocks.

Next Steps:

If you are building an income portfolio, then Vardhman Acrylics is a complicated choice since it has some positive aspects as well as negative ones. 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. I’ve put together three fundamental factors you should look at:

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

2. Valuation: What is VARDHACRLC 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 VARDHACRLC 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.