Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. Historically, Powermatic Data Systems Limited (SGX:BCY) has paid dividends to shareholders, and these days it yields 3.1%. Let’s dig deeper into whether Powermatic Data Systems should have a place in your portfolio.

Check out our latest analysis for Powermatic Data Systems

5 checks you should do on a dividend stock

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?

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

• Has the amount of dividend per share grown over the past?

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

• Based on future earnings growth, will it be able to continue to payout dividend at the current rate?

How does Powermatic Data Systems fare?

The current trailing twelve-month payout ratio for the stock is 39%, 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.

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 business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.

If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. The reality facing BCY investors is that whilst it has continued to pay shareholders dividend, there has not been any increase in the level of dividends paid in the past decade. However, income investors that value stability over growth may still find BCY appealing.

Relative to peers, Powermatic Data Systems has a yield of 3.1%, which is high for Communications stocks but still below the market’s top dividend payers.

Next Steps:

If you are building an income portfolio, then Powermatic Data Systems is a complicated choice since it has some positive aspects as well as negative ones. 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. I’ve put together three relevant aspects you should look at: