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Australian Finance Group (ASX:AFG) Will Pay A Larger Dividend Than Last Year At A$0.096

The board of Australian Finance Group Limited (ASX:AFG) has announced that it will be paying its dividend of A$0.096 on the 22nd of September, an increased payment from last year's comparable dividend. This takes the dividend yield to 8.5%, which shareholders will be pleased with.

View our latest analysis for Australian Finance Group

Australian Finance Group's Payment Expected To Have Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable.

Australian Finance Group has a good history of paying out dividends, with its current track record at 7 years. Past distributions unfortunately do not guarantee future ones, and Australian Finance Group's last earnings report actually showed that the company went over its net earnings in its total dividend distribution. This is worrying for investors of Australian Finance Group, as it points towards the dividends being unsustainable in the long term.

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Looking forward, EPS is forecast to rise by 77.2% over the next 3 years. For the same time horizon, analysts estimate that the future payout ratio could be 72% which would be quite comfortable going to take the dividend forward.

historic-dividend
historic-dividend

Australian Finance Group's Dividend Has Lacked Consistency

Looking back, Australian Finance Group's dividend hasn't been particularly consistent. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The dividend has gone from an annual total of A$0.0426 in 2015 to the most recent total annual payment of A$0.166. This means that it has been growing its distributions at 21% per annum over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

Dividend Growth May Be Hard To Achieve

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. In the last five years, Australian Finance Group's earnings per share has shrunk at approximately 4.5% per annum. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.

Australian Finance Group's Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think Australian Finance Group will make a great income stock. The track record isn't great, and the payments are a bit high to be considered sustainable. We would be a touch cautious of relying on this stock primarily for the dividend income.

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 3 warning signs for Australian Finance Group that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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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