If you are interested in cashing in on Mastek Limited’s (NSE:MASTEK) upcoming dividend of ₹3.50 per share, you only have 4 days left to buy the shares before its ex-dividend date, 06 November 2018, in time for dividends payable on the 24 November 2018. Should you diversify into Mastek and boost your portfolio income stream? Well, keep on reading because today, I’m going to look at the latest data and analyze the stock and its dividend property in further detail.

Check out our latest analysis for Mastek

How I analyze a dividend stock

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

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

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

• Has dividend per share amount increased over the past?

• Is its earnings sufficient to payout dividend at the current rate?

• Will it have the ability to keep paying its dividends going forward?

How well does Mastek fit our criteria?

Mastek has a trailing twelve-month payout ratio of 21%, which means that the dividend is covered by earnings. In the near future, analysts are predicting lower payout ratio of 17%, leading to a dividend yield of 1.6%. However, EPS should increase to ₹40.8, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.

When considering the sustainability of dividends, it is also worth checking the cash flow of a company. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.

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. Not only have dividend payouts from Mastek fallen over the past 10 years, it has also been highly volatile during this time, with drops of over 25% in some years. This means that dividend hunters should probably steer clear of the stock, at least for now until the track record improves.

Compared to its peers, Mastek has a yield of 1.6%, which is high for IT stocks but still below the market’s top dividend payers.

Next Steps:

Taking all the above into account, Mastek 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 relevant factors you should further examine: