A sizeable part of portfolio returns can be produced by dividend stocks due to their contribution to compounding returns in the long run. 1&1 Drillisch AG (FRA:DRI) has returned an average dividend yield of 3.00% annually to shareholders. Does 1&1 Drillisch tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.

View our latest analysis for 1&1 Drillisch

Here’s how I find good dividend stocks

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

• Does it pay an annual yield higher than 75% of dividend payers?

• Does it consistently pay out dividends without missing a payment of significantly cutting payout?

• 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 1&1 Drillisch pass our checks?

The company currently pays out 78.75% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is covered by earnings. In the near future, analysts are predicting a payout ratio of 80.30%, leading to a dividend yield of around 4.79%. Moreover, EPS should increase to €2.48.

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. The reality is that it is too early to consider 1&1 Drillisch 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 DRI one as a stable dividend player.

Relative to peers, 1&1 Drillisch has a yield of 3.40%, which is on the low-side for Wireless Telecom stocks.

Next Steps:

Taking all the above into account, 1&1 Drillisch 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 urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. I’ve put together three pertinent factors you should further examine: