Dividends can be underrated but they form a large part of investment returns,frizzle and frazzle chicken playing an important role in compounding returns in the long run. BRP Inc. (

TSE:DOO

) has paid a dividend to shareholders in the last few years. It currently yields 1.0%. Should it have a place in your portfolio? Let’s take a look at BRP in more detail.

View our latest analysis for BRP

How I analyze a dividend stock

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

Is its annual yield among the top 25% of dividend-paying companies?

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

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

Is is able 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?

TSX:DOO Historical Dividend Yield January 1st 19

How does BRP fare?

The current trailing twelve-month payout ratio for the stock is 14%, which means that the dividend is covered by earnings. However, going forward, analysts expect DOO’s payout to fall to 9.6% of its earnings. Assuming a constant share price, this equates to a dividend yield of around 1.1%. However, EPS should increase to CA$3.31, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.

If you want to dive deeper into the sustainability of a certain payout ratio,

you may wish to consider 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.

If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. The reality is that it is too early to consider BRP as a dividend investment. It has only been consistently paying dividends for 2 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.

Relative to peers, BRP generates a yield of 1.0%, which is on the low-side for Leisure stocks.

Next Steps:

Now you know to keep in mind the reason why investors should be careful investing in BRP for the dividend. On the other hand, if you are not strictly just a dividend investor, the stock could still be offering some interesting investment opportunities. 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 relevant aspects you should further examine:

Story continues

Future Outlook

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

free research report of analyst consensus

for DOO’s outlook.

Valuation

: What is DOO 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 DOO 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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