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Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. Recently, Kelly Partners Group Holdings Limited (ASX:KPG) has started paying dividends to shareholders. Today it yields 5.4%. Should it have a place in your portfolio? Let's take a look at Kelly Partners Group Holdings in more detail.

View our latest analysis for Kelly Partners Group Holdings

5 questions I ask before picking a dividend stock

Whenever I am looking at a potential dividend stock investment, I always check these five metrics:

• Does it pay an annual yield higher than 75% of dividend payers?

• Does it consistently pay out dividends without missing a payment of significantly cutting payout?

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

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

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

How well does Kelly Partners Group Holdings fit our criteria?

The current trailing twelve-month payout ratio for the stock is 43%, which means that the dividend is covered by earnings. In the near future, analysts are predicting a higher payout ratio of 47% which, assuming the share price stays the same, leads to a dividend yield of around 5.9%. However, EPS is forecasted to fall to A$0.095 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.

When considering the sustainability of dividends, it is also worth checking the cash flow of a company. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.

If there is one thing that you want to be reliable in your life, it's dividend stocks and their constant income stream. Unfortunately, it is really too early to view Kelly Partners Group Holdings as a dividend investment. It has only been paying out dividend for the past one year. Generally, the rule of thumb for determining whether a stock is a reliable dividend payer is that it should be consistently paying dividends for the past 10 years or more. Clearly there's a long road ahead before we can ascertain whether KPG one as a stable dividend player.

Compared to its peers, Kelly Partners Group Holdings generates a yield of 5.4%, which is high for Professional Services stocks but still below the market's top dividend payers.

Next Steps:

Whilst there are few things you may like about Kelly Partners Group Holdings 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, 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 key factors you should further examine: