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There is a lot to be liked about Indian Bank (NSE:INDIANB) as an income stock. It has paid dividends over the past 10 years. The stock currently pays out a dividend yield of 2.7%, and has a market cap of ₹110b. Does Indian Bank tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.

Check out our latest analysis for Indian Bank

5 questions to ask before buying a dividend stock

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

• Is its annual yield among the top 25% of dividend-paying companies?

• 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 is able to pay the current rate of dividends from its earnings?

• Will the company be able to keep paying dividend based on the future earnings growth?

Does Indian Bank pass our checks?

Indian Bank has a trailing twelve-month payout ratio of 22%, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting a payout ratio of 23%, leading to a dividend yield of around 3.6%. In addition to this, EPS is forecasted to fall to ₹24.4 in the upcoming year.

If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider the cash flow of the business. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.

If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. Although INDIANB’s per share payments have increased in the past 10 years, it has not been a completely smooth ride. Shareholders would have seen a few years of reduced payments in this time.

Relative to peers, Indian Bank has a yield of 2.7%, which is high for Banks stocks.

Next Steps:

With this in mind, I definitely rank Indian Bank 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, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. There are three essential aspects you should further examine:

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

2. Historical Performance: What has INDIANB’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.

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.