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A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. Historically, Ebro Foods SA (BME:EBRO) has paid dividends to shareholders, and these days it yields 3.0%. Should it have a place in your portfolio? Let’s take a look at Ebro Foods in more detail.

View our latest analysis for Ebro Foods

5 questions to ask before buying a dividend stock

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

• Is it the top 25% annual dividend yield payer?

• Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?

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

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

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

Does Ebro Foods pass our checks?

The current trailing twelve-month payout ratio for the stock is 42.8%, which means that the dividend is covered by earnings. Going forward, analysts expect EBRO’s payout to increase to 56.5% of its earnings, which leads to a dividend yield of 3.9%. However, EPS is forecasted to fall to €1.19 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.

Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. Whilst its per-share payments have increased during the past 10 years, there has been some hiccups. Investors have seen reductions in the dividend per share in the past, although, it has picked up again.

Relative to peers, Ebro Foods has a yield of 3.0%, which is high for Food stocks but still below the market’s top dividend payers.

Next Steps:

With this in mind, I definitely rank Ebro Foods 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 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 pertinent factors you should further examine:

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

2. Valuation: What is EBRO 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 EBRO 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 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.