Yahoo Finance

Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. Historically, PNB Gilts Ltd. (NSE:PNBGILTS) has been paying a dividend to shareholders. Today it yields 2.9%. Does PNB Gilts tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.

View our latest analysis for PNB Gilts

5 checks you should use to assess a dividend stock

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

• Is their annual yield among the top 25% of dividend payers?

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

• Has dividend per share risen in the past couple of years?

• Is its earnings sufficient to payout dividend at the current rate?

• Will it have the ability to keep paying its dividends going forward?

How does PNB Gilts fare?

PNB Gilts has a negative payout ratio, which is usually not ideal.

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. Not only have dividend payouts from PNB Gilts fallen over the past 10 years, it has also been highly volatile during this time, with drops of over 25% in some years. These characteristics do not bode well for income investors seeking reliable stream of dividends.

Relative to peers, PNB Gilts produces a yield of 2.9%, which is high for Capital Markets stocks.

Next Steps:

After digging a little deeper into PNB Gilts’s yield, it’s easy to see why you should be cautious investing in the company just for the dividend. On the other hand, if you are not strictly just a dividend investor, the stock could still be offering some interesting investment opportunities. 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 key factors you should look at:

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

2. Historical Performance: What has PNBGILTS’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. 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.