Yahoo Finance ASX's (ASX:ASX) Upcoming Dividend Will Be Larger Than Last Year's
ASX Limited (ASX:ASX) has announced that it will be increasing its dividend from last year's comparable payment on the 28th of September to A$1.20. Despite this raise, the dividend yield of 3.0% is only a modest boost to shareholder returns.
Check out our latest analysis for ASX
ASX's Earnings Easily Cover The Distributions
The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Before making this announcement, ASX was paying out quite a large proportion of both earnings and cash flow, with the dividend being 468% of cash flows. Paying out such a high proportion of cash flows certainly exposes the company to cutting the dividend if cash flows were to reduce.
Earnings per share is forecast to rise by 12.1% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 83%, which is on the higher side, but certainly still feasible.
ASX Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. Since 2012, the dividend has gone from A$1.78 total annually to A$2.36. This means that it has been growing its distributions at 2.9% per annum over that time. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.
The Dividend's Growth Prospects Are Limited
The company's investors will be pleased to have been receiving dividend income for some time. Earnings have grown at around 3.2% a year for the past five years, which isn't massive but still better than seeing them shrink. ASX's earnings per share has barely grown, which is not ideal - perhaps this is why the company pays out the majority of its earnings to shareholders. That's fine as far as it goes, but we're less enthusiastic as this often signals that the dividend is likely to grow slower in the future.
The Dividend Could Prove To Be Unreliable
Overall, we always like to see the dividend being raised, but we don't think ASX will make a great income stock. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. We would probably look elsewhere for an income investment.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 1 warning sign for ASX that investors should know about before committing capital to this stock. Is ASX not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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