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Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. Historically, Frencken Group Limited (SGX:E28) has paid a dividend to shareholders. It currently yields 4.2%. Does Frencken Group tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.

Check out our latest analysis for Frencken Group

Here’s how I find good dividend stocks

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

• Is it paying an annual yield above 75% of dividend payers?

• 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?

• Can it afford 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 Frencken Group fare?

The company currently pays out 30% of its earnings as a dividend, according to its trailing twelve-month data, meaning the dividend is sufficiently 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.

When considering the sustainability of dividends, it is also worth checking the cash flow of a company. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.

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. Although E28’s per share payments have increased in the past 10 years, it has not been a completely smooth ride. Investors have seen reductions in the dividend per share in the past, although, it has picked up again.

Compared to its peers, Frencken Group produces a yield of 4.2%, which is high for Machinery stocks but still below the market’s top dividend payers.

Next Steps:

Whilst there are few things you may like about Frencken Group 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 relevant aspects you should further examine: