Dividend paying stocks like Belvoir Group PLC (LON:BLV) tend to be popular with investors, and for good reason - some research suggests a significant amount of all stock market returns come from reinvested dividends. On the other hand, investors have been known to buy a stock because of its yield, and then lose money if the company's dividend doesn't live up to expectations.

In this case, Belvoir Group likely looks attractive to dividend investors, given its 6.7% dividend yield and seven-year payment history. We'd agree the yield does look enticing. The company also bought back stock during the year, equivalent to approximately 1.1% of the company's market capitalisation at the time. Some simple research can reduce the risk of buying Belvoir Group for its dividend - read on to learn more.

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Payout ratios

Companies (usually) pay dividends out of their earnings. If a company is paying more than it earns, the dividend might have to be cut. As a result, we should always investigate whether a company can afford its dividend, measured as a percentage of a company's net income after tax. Looking at the data, we can see that 62% of Belvoir Group's profits were paid out as dividends in the last 12 months. This is a fairly normal payout ratio among most businesses. It allows a higher dividend to be paid to shareholders, but does limit the capital retained in the business - which could be good or bad.

Another important check we do is to see if the free cash flow generated is sufficient to pay the dividend. The company paid out 50% of its free cash flow, which is not bad per se, but does start to limit the amount of cash Belvoir Group has available to meet other needs. It's positive to see that Belvoir Group's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

We update our data on Belvoir Group every 24 hours, so you can always get our latest analysis of its financial health, here.

Dividend Volatility

From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. Looking at the data, we can see that Belvoir Group has been paying a dividend for the past seven years. Its dividend has not fluctuated much that time, which we like, but we're conscious that the company might not yet have a track record of maintaining dividends in all economic conditions. During the past seven-year period, the first annual payment was UK£0.058 in 2012, compared to UK£0.072 last year. This works out to be a compound annual growth rate (CAGR) of approximately 3.1% a year over that time.