Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. In the past 10 years Schlumberger Limited (NYSE:SLB) has returned an average of 2.00% per year to investors in the form of dividend payouts. Let’s dig deeper into whether Schlumberger should have a place in your portfolio. View our latest analysis for Schlumberger

How I analyze a dividend stock

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

• Is its annual yield among the top 25% of dividend-paying companies?

• Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?

• Has it increased its dividend per share amount over the past?

• Can it afford to pay the current rate of dividends from its earnings?

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

How does Schlumberger fare?

SLB currently pays out twice what it is earning, meaning that the dividend is predominantly funded by retained earnings. In the near future, analysts are predicting a more sensible payout ratio of 51.93%, leading to a dividend yield of 2.79%. Moreover, EPS should increase to $1.9, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment. If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. SLB has increased its DPS from $0.84 to $2 in the past 10 years. It has also been paying out dividend consistently during this time, as you’d expect for a company increasing its dividend levels. These are all positive signs of a great, reliable dividend stock. Relative to peers, Schlumberger produces a yield of 2.62%, which is high for energy services stocks but still below the market’s top dividend payers.

Next Steps:

With this in mind, I definitely rank Schlumberger as a strong dividend stock, and makes it worth further research for anyone who likes steady income generation from their portfolio. 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. There are three pertinent factors you should look at:

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

2. Valuation: What is SLB 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 SLB is currently mispriced by the market.

3. Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.

To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.