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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. Recently, Unicaja Banco, S.A. (BME:UNI) has started paying dividends to shareholders. Today it yields 2.0%. Should it have a place in your portfolio? Let’s take a look at Unicaja Banco in more detail.

Check out our latest analysis for Unicaja Banco

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:

• 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 the amount of dividend per share grown over the past?

• 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?

Does Unicaja Banco pass our checks?

The current trailing twelve-month payout ratio for the stock is 20%, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect UNI’s payout to increase to 41% of its earnings. Assuming a constant share price, this equates to a dividend yield of around 5.0%. In addition to this, EPS should increase to €0.10. The higher payout forecasted, along with higher earnings, should lead to greater dividend income for investors moving forward.

When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. 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. Unfortunately, it is really too early to view Unicaja Banco 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 UNI one as a stable dividend player.

In terms of its peers, Unicaja Banco generates a yield of 2.0%, which is on the low-side for Banks stocks.

Next Steps:

Whilst there are few things you may like about Unicaja Banco 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, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. Below, I’ve compiled three pertinent factors you should look at: