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Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. Historically, Objective Corporation Limited (ASX:OCL) has paid dividends to shareholders, and these days it yields 1.8%. Should it have a place in your portfolio? Let’s take a look at Objective in more detail.

Check out our latest analysis for Objective

Here’s how I find good dividend stocks

When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:

• Is it paying an annual yield above 75% of dividend payers?

• Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?

• Has dividend per share amount increased over the past?

• Does earnings amply cover its dividend payments?

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

Does Objective pass our checks?

Objective has a trailing twelve-month payout ratio of 62%, which means that the dividend is 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 assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.

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. Although OCL’s per share payments have increased in the past 10 years, it has not been a completely smooth ride. Investors have seen reductions in the dividend per share in the past, although, it has picked up again.

In terms of its peers, Objective produces a yield of 1.8%, which is high for Software stocks but still below the low risk savings rate.

Next Steps:

Now you know to keep in mind the reason why investors should be careful investing in Objective for the dividend. 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, 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. I’ve put together three important factors you should further research:

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

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

3. 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.