Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. Money3 Corporation Limited (ASX:MNY) has returned to shareholders over the past 10 years, an average dividend yield of 7.00% annually. Should it have a place in your portfolio? Let’s take a look at Money3 in more detail. View our latest analysis for Money3

5 checks you should use to assess a dividend stock

When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:

• Is it paying an annual yield above 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 is able to pay the current rate of dividends from its earnings?

• Will the company be able to keep paying dividend based on the future earnings growth?

How well does Money3 fit our criteria?

Money3 has a payout ratio of 30.03%, which means that the dividend is covered by earnings. In the near future, analysts are predicting a higher payout ratio of 34.54%, leading to a dividend yield of 3.82%. However, EPS is forecasted to fall to A$0.18 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income. 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 Money3 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. In terms of its peers, Money3 generates a yield of 3.22%, which is on the low-side for consumer finance stocks.

Next Steps:

Whilst there are few things you may like about Money3 from a dividend stock perspective, the truth is that overall it probably is not the best choice for a dividend investor. 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, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. There are three pertinent aspects you should further examine:

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

2. Valuation: What is MNY 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 MNY 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.

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.