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Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. Historically, Kewal Kiran Clothing Limited (NSE:KKCL) has been paying a dividend to shareholders. Today it yields 2.6%. Does Kewal Kiran Clothing tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.

See our latest analysis for Kewal Kiran Clothing

Here’s how I find good dividend stocks

When researching a dividend stock, I always follow the following screening criteria:

• Is their annual yield among the top 25% of dividend payers?

• Has it paid dividend every year without dramatically reducing payout in the past?

• 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 Kewal Kiran Clothing fit our criteria?

The company currently pays out 56% of its earnings as a dividend, according to its trailing twelve-month data, 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. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.

Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. Whilst its per-share payments have increased during the past 10 years, there has been some hiccups. Investors have seen reductions in the dividend per share in the past, although, it has picked up again.

Compared to its peers, Kewal Kiran Clothing generates a yield of 2.6%, which is high for Luxury stocks.

Next Steps:

With this in mind, I definitely rank Kewal Kiran Clothing as a strong dividend stock, and makes it worth further research for anyone who likes steady income generation from their portfolio. 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 relevant factors you should further examine:

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

2. Valuation: What is KKCL 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 KKCL is currently mispriced by the market.

3. Other 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.