Australia markets closed
  • ALL ORDS

    7,562.50
    -37.40 (-0.49%)
     
  • AUD/USD

    0.7147
    +0.0019 (+0.26%)
     
  • ASX 200

    7,239.80
    -39.50 (-0.54%)
     
  • OIL

    71.34
    +3.19 (+4.68%)
     
  • GOLD

    1,798.00
    +9.90 (+0.55%)
     
  • BTC-AUD

    80,567.95
    +3,654.40 (+4.75%)
     
  • CMC Crypto 200

    1,438.92
    -16.49 (-1.13%)
     

Treasury Wine Estates (ASX:TWE) Has Announced That It Will Be Increasing Its Dividend To AU$0.13

  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
·3-min read
In this article:
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

Treasury Wine Estates Limited (ASX:TWE) has announced that it will be increasing its dividend on the 1st of October to AU$0.13. This will take the dividend yield from 2.2% to 2.2%, providing a nice boost to shareholder returns.

Check out our latest analysis for Treasury Wine Estates

Treasury Wine Estates' Dividend Is Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Treasury Wine Estates' dividend made up quite a large proportion of earnings but only 58% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

Looking forward, earnings per share is forecast to rise by 31.6% over the next year. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 68% which would be quite comfortable going to take the dividend forward.

historic-dividend
historic-dividend

Dividend Volatility

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 dividend has gone from AU$0.06 in 2011 to the most recent annual payment of AU$0.28. This works out to be a compound annual growth rate (CAGR) of approximately 17% a year 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.

The Dividend Has Growth Potential

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. It's encouraging to see Treasury Wine Estates has been growing its earnings per share at 7.4% a year over the past five years. Past earnings growth has been decent, but unless this is one of those rare businesses that can grow without additional capital investment or marketing spend, we'd generally expect the higher payout ratio to limit its future growth prospects.

Our Thoughts On Treasury Wine Estates' Dividend

In summary, while it's always good to see the dividend being raised, we don't think Treasury Wine Estates' payments are rock solid. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign for Treasury Wine Estates that investors need to be conscious of moving forward. We have also put together a list of global stocks with a solid dividend.

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.

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

Our goal is to create a safe and engaging place for users to connect over interests and passions. In order to improve our community experience, we are temporarily suspending article commenting