A sizeable part of portfolio returns can be produced by dividend stocks due to their contribution to compounding returns in the long run. Brook Crompton Holdings Ltd. (SGX:AWC) has paid a dividend to shareholders in the last few years. It currently yields 2.4%. Should it have a place in your portfolio? Let’s take a look at Brook Crompton Holdings in more detail.

View our latest analysis for Brook Crompton Holdings

5 checks you should use to assess a dividend stock

When researching a dividend stock, I always follow the following screening criteria:

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

• Has it paid dividend every year without dramatically reducing payout in the past?

• Has the amount of dividend per share grown 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?

Does Brook Crompton Holdings pass our checks?

Brook Crompton Holdings has a trailing twelve-month payout ratio of 20%, 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. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.

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. Unfortunately, it is really too early to view Brook Crompton Holdings as a dividend investment. It has only been consistently paying dividends for 2 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.

Compared to its peers, Brook Crompton Holdings produces a yield of 2.4%, which is on the low-side for Trade Distributors stocks.

Next Steps:

After digging a little deeper into Brook Crompton Holdings’s yield, it’s easy to see why you should be cautious investing in the company just 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, 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 essential aspects you should further examine:

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

2. Valuation: What is AWC 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 AWC 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.