Yahoo Finance Is ASX Limited (ASX:ASX) A Great Dividend Stock?
A sizeable part of portfolio returns can be produced by dividend stocks due to their contribution to compounding returns in the long run. Historically, ASX Limited (ASX:ASX) has paid dividends to shareholders, and these days it yields 3.5%. Let’s dig deeper into whether ASX should have a place in your portfolio.
See our latest analysis for ASX
5 questions I ask before picking a dividend stock
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
Is it paying an annual yield above 75% of dividend payers?
Does it consistently pay out dividends without missing a payment of significantly cutting payout?
Has dividend per share amount increased over the past?
Does earnings amply cover its dividend payments?
Will it have the ability to keep paying its dividends going forward?
How does ASX fare?
The company currently pays out 92% of its earnings as a dividend, according to its trailing twelve-month data, meaning the dividend is not sufficiently covered by its earnings. In the near future, analysts are predicting a more sensible payout ratio of 90%, leading to a dividend yield of 3.9%. Furthermore, EPS should increase to A$2.48, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. Although ASX’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.
In terms of its peers, ASX generates a yield of 3.5%, which is on the low-side for Capital Markets stocks.
Next Steps:
Whilst there are few things you may like about ASX from a dividend stock perspective, the truth is that overall it probably is not the best choice for a dividend investor. 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, 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. I’ve put together three important factors you should further research:
Future Outlook: What are well-informed industry analysts predicting for ASX’s future growth? Take a look at our free research report of analyst consensus for ASX’s outlook.
Valuation: What is ASX 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 ASX 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 editorial-team@simplywallst.com.
