Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. Recently, GTPL Hathway Limited (NSE:GTPL) has started paying dividends to shareholders. Today it yields 1.5%. Does GTPL Hathway tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.

See our latest analysis for GTPL Hathway

Here’s how I find good dividend stocks

Whenever I am looking at a potential dividend stock investment, I always check these five metrics:

• Is their annual yield among the top 25% 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 it have the ability to keep paying its dividends going forward?

Does GTPL Hathway pass our checks?

GTPL Hathway has a trailing twelve-month payout ratio of 20.8%, which means that the dividend is covered by earnings. Going forward, analysts expect GTPL’s payout to remain around the same level at 21.1% of its earnings, which leads to a dividend yield of 3.8%. In addition to this, EPS should increase to ₹9.12.

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

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. The reality is that it is too early to consider GTPL Hathway as a dividend investment. Last year was the company’s first dividend payment, so it is certainly early days. The standard practice for reliable payers is to look for 10 or so years of track record.

In terms of its peers, GTPL Hathway produces a yield of 1.5%, which is high for Media stocks but still below the market’s top dividend payers.

Next Steps:

If GTPL Hathway is in your portfolio for cash-generating reasons, there may be better alternatives out there. 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, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. Below, I’ve compiled three fundamental aspects you should further research: