Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. Historically, Ucal Fuel Systems Limited (NSE:UCALFUEL) has paid a dividend to shareholders. It currently yields 5.9%. Should it have a place in your portfolio? Let’s take a look at Ucal Fuel Systems in more detail.

View our latest analysis for Ucal Fuel Systems

5 checks you should do on 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 dividend per share risen in the past couple of years?

• Is is able to pay the current rate of dividends from its earnings?

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

How does Ucal Fuel Systems fare?

The current trailing twelve-month payout ratio for the stock is 22%, which means that the dividend is 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.

If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider the cash flow of the business. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.

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. Whilst its per-share payments have increased during the past 10 years, there has been some hiccups. Shareholders would have seen a few years of reduced payments in this time.

In terms of its peers, Ucal Fuel Systems generates a yield of 5.9%, which is high for Auto Components stocks.

Next Steps:

Keeping in mind the dividend characteristics above, Ucal Fuel Systems is definitely worth considering for investors looking to build a dedicated income portfolio. 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 important factors you should further examine:

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

2. Historical Performance: What has UCALFUEL’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.

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 past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.