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, Yongmao Holdings Limited (SGX:BKX) has paid a dividend to shareholders. It currently yields 2.8%. Should it have a place in your portfolio? Let’s take a look at Yongmao Holdings in more detail.

View our latest analysis for Yongmao Holdings

5 questions I ask before picking a dividend stock

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

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

• Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?

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

• Does earnings amply cover its dividend payments?

• Will it be able to continue to payout at the current rate in the future?

How well does Yongmao Holdings fit our criteria?

Yongmao Holdings has a trailing twelve-month payout ratio of 17%, 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 considering the sustainability of dividends, it is also worth checking the cash flow of a company. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.

If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. Dividend payments from Yongmao Holdings have been volatile in the past 10 years, with some years experiencing significant drops of over 25%. These characteristics do not bode well for income investors seeking reliable stream of dividends.

Compared to its peers, Yongmao Holdings produces a yield of 2.8%, which is on the low-side for Machinery stocks.

Next Steps:

After digging a little deeper into Yongmao Holdings’s yield, it’s easy to see why you should be cautious investing in the company just for the dividend. On the other hand, if you are not strictly just a dividend investor, the stock could still be offering some interesting investment opportunities. 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. I’ve put together three key factors you should further research:

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

2. Valuation: What is BKX 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 BKX 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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.