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A sizeable part of portfolio returns can be produced by dividend stocks due to their contribution to compounding returns in the long run. Marriott Vacations Worldwide Corporation (NYSE:VAC) has paid a dividend to shareholders in the last few years. It currently yields 1.8%. Does Marriott Vacations Worldwide tick all the boxes of a great dividend stock? Below, I'll take you through my analysis.

View our latest analysis for Marriott Vacations Worldwide

Here's how I find good dividend stocks

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

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

• Has it consistently paid a stable dividend without missing a payment or drastically 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 well does Marriott Vacations Worldwide fit our criteria?

Marriott Vacations Worldwide has a trailing twelve-month payout ratio of 100%, meaning the dividend is not sufficiently covered by its earnings. However, going forward, analysts expect VAC's payout to fall into a more sustainable range of 19% of its earnings. Assuming a constant share price, this equates to a dividend yield of around 1.8%. Moreover, EPS should increase to $6.52, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.

When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.

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. The reality is that it is too early to consider Marriott Vacations Worldwide as a dividend investment. It has only been consistently paying dividends for 4 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.

In terms of its peers, Marriott Vacations Worldwide generates a yield of 1.8%, which is on the low-side for Hospitality stocks.

Next Steps:

After digging a little deeper into Marriott Vacations Worldwide'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 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 essential aspects you should further research:

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

2. Valuation: What is VAC 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 VAC 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.