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Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. Historically, Swelect Energy Systems Limited (NSE:SWELECTES) has been paying a dividend to shareholders. Today it yields 1.9%. Should it have a place in your portfolio? Let’s take a look at Swelect Energy Systems in more detail.

See our latest analysis for Swelect Energy Systems

5 checks you should use to assess a dividend stock

If you are a dividend investor, you should always assess these five key metrics:

• Does it pay an annual yield higher than 75% of dividend payers?

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

• Has dividend per share amount increased over the past?

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

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

How does Swelect Energy Systems fare?

The company currently pays out 25% of its earnings as a dividend, according to its trailing twelve-month data, 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.

When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.

If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. Although SWELECTES’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.

Compared to its peers, Swelect Energy Systems generates a yield of 1.9%, which is high for Electrical stocks but still below the market’s top dividend payers.

Next Steps:

If Swelect Energy Systems is in your portfolio for cash-generating reasons, there may be better alternatives out there. 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, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. Below, I’ve compiled three relevant aspects you should look at: