A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. Over the past 7 years, DuluxGroup Limited (ASX:DLX) has returned an average of 4.00% per year to shareholders in terms of dividend yield. Does DuluxGroup tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis. View our latest analysis for DuluxGroup

5 checks you should do on a dividend stock

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

• Is it the top 25% annual dividend yield payer?

• 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 it able 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?

How does DuluxGroup fare?

The company currently pays out 70.98% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is covered by earnings. Going forward, analysts expect DLX’s payout to remain around the same level at 71.66% of its earnings, which leads to a dividend yield of 3.91%. Moreover, EPS should increase to A$0.38. If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. Unfortunately, it is really too early to view DuluxGroup as a dividend investment. It has only been consistently paying dividends for 7 years, however, standard practice for reliable payers is to look for a 10-year minimum track record. Relative to peers, DuluxGroup produces a yield of 3.48%, which is high for Chemicals stocks but still below the market’s top dividend payers.

Next Steps:

Taking all the above into account, DuluxGroup 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 essential factors you should further research:

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

• Valuation: What is DLX 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 DLX 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.