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National Presto Industries: Dividend Dynamo or Blowup?

http://www.fool.com/investing/general/2012/02/03/national-presto-industries-dividend-dynamo-or-blo.aspx

Ilan Moscovitz
February 3, 2012

Dividend investing is a tried-and-true strategy for generating strong, steady returns in economies both good and bad. But as corporate America's slew of dividend cuts and suspensions over the past few years has demonstrated, it's not enough simply to buy a high yield. You also need to make sure those payouts are sustainable.

Let's examine how National Presto Industries (NYSE: NPK  ) stacks up. In this series, we consider four critical factors investors should examine in every dividend stock. We'll then tie it all together to look at whether National Presto is a dividend dynamo or a disaster in the making.

1. Yield
First and foremost, dividend investors like a large forward yield. But if a yield gets too high, it may reflect investors' doubts about the payout's sustainability. If investors had confidence in the stock, they'd be buying it, driving up the share price and shrinking the yield.

While you won't see the figure reported on most financial websites, if you include National Presto's "special" annual dividends, the stock yields 8.3%, considerably higher than the S&P 500's 2.1%.

2. Payout ratio
The payout ratio might be the most important metric for judging dividend sustainability. It compares the amount of money a company paid out in dividends last