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Here's Why We're Wary Of Buying ASX's (ASX:ASX) For Its Upcoming Dividend

Simply Wall St
·3-min read

It looks like ASX Limited (ASX:ASX) is about to go ex-dividend in the next 4 days. You can purchase shares before the 7th of September in order to receive the dividend, which the company will pay on the 30th of September.

ASX's next dividend payment will be AU$1.23 per share. Last year, in total, the company distributed AU$2.45 to shareholders. Last year's total dividend payments show that ASX has a trailing yield of 2.7% on the current share price of A$89.66. If you buy this business for its dividend, you should have an idea of whether ASX's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for ASX

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. ASX paid out 93% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances.

When the dividend payout ratio is high, as it is in this case, the dividend is usually at greater risk of being cut in the future.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
historic-dividend

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see ASX earnings per share are up 4.6% per annum over the last five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, ASX has increased its dividend at approximately 3.5% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

To Sum It Up

Is ASX an attractive dividend stock, or better left on the shelf? ASX has been growing earnings per share at a reasonable rate, but over the last year its dividend was not well covered by earnings. ASX doesn't appear to have a lot going for it, and we're not inclined to take a risk on owning it for the dividend.

Although, if you're still interested in ASX and want to know more, you'll find it very useful to know what risks this stock faces. For example - ASX has 1 warning sign we think you should be aware of.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

This article by Simply Wall St is general in nature. 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.

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