Iluka Resources' (ASX:ILU) Dividend Will Be Increased To A$0.20
Iluka Resources Limited (ASX:ILU) has announced that it will be increasing its dividend from last year's comparable payment on the 30th of March to A$0.20. Although the dividend is now higher, the yield is only 4.3%, which is below the industry average.
See our latest analysis for Iluka Resources
Iluka Resources Is Paying Out More Than It Is Earning
If it is predictable over a long period, even low dividend yields can be attractive. However, Iluka Resources' earnings easily cover the dividend. This means that most of its earnings are being retained to grow the business.
Over the next year, EPS is forecast to fall by 49.9%. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 161%, which could put the dividend under pressure if earnings don't start to improve.
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was A$0.75 in 2013, and the most recent fiscal year payment was A$0.45. Doing the maths, this is a decline of about 5.0% per year. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.
The Dividend Looks Likely To Grow
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Iluka Resources has seen EPS rising for the last five years, at 36% per annum. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.
We Really Like Iluka Resources' Dividend
In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The earnings easily cover the company's distributions, and the company is generating plenty of cash. If earnings do fall over the next 12 months, the dividend could be buffeted a little bit, but we don't think it should cause too much of a problem in the long term. All in all, this checks a lot of the boxes we look for when choosing an income stock.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. To that end, Iluka Resources has 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield 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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