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A sizeable part of portfolio returns can be produced by dividend stocks due to their contribution to compounding returns in the long run. DigiTouch S.p.A. (

BIT:DGT

) has begun paying dividends recently. It now yields 3.1%. Let’s dig deeper into whether DigiTouch should have a place in your portfolio.

See our latest analysis for DigiTouch

5 checks you should use to assess 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 dividend per share amount increased over the past?

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

Based on future earnings growth, will it be able to continue to payout dividend at the current rate?

BIT:DGT Historical Dividend Yield February 1st 19

Does DigiTouch pass our checks?

DigiTouch has a trailing twelve-month payout ratio of 56%, which means that the dividend is covered by earnings. However, going forward, analysts expect DGT’s payout to fall to 20% of its earnings. Assuming a constant share price, this equates to a dividend yield of 3.1%. However, EPS should increase to €0.14, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.

When thinking about whether a dividend is sustainable,

another factor to consider is the cash flow

. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.

If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. Unfortunately, it is really too early to view DigiTouch 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 DGT one as a stable dividend player.

Compared to its peers, DigiTouch generates a yield of 3.1%, which is high for Media stocks but still below the market’s top dividend payers.

Next Steps:

If you are building an income portfolio, then DigiTouch is a complicated choice since it has some positive aspects as well as negative ones. However, if you are not strictly just a dividend investor, the stock could still offer some interesting investment opportunities. 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 research:

Story continues

Future Outlook

: What are well-informed industry analysts predicting for DGT’s future growth? Take a look at our

free research report of analyst consensus

for DGT’s outlook.

Valuation

: What is DGT 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 DGT is currently mispriced by the market.

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

[email protected]

.

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