Yahoo Finance We Wouldn't Be Too Quick To Buy AusNet Services Ltd (ASX:AST) Before It Goes Ex-Dividend
AusNet Services Ltd (ASX:AST) stock is about to trade ex-dividend in four days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Thus, you can purchase AusNet Services' shares before the 20th of May in order to receive the dividend, which the company will pay on the 24th of June.
The company's upcoming dividend is AU$0.048 a share, following on from the last 12 months, when the company distributed a total of AU$0.095 per share to shareholders. Based on the last year's worth of payments, AusNet Services has a trailing yield of 5.3% on the current stock price of A$1.8. If you buy this business for its dividend, you should have an idea of whether AusNet Services's dividend is reliable and sustainable. As a result, readers should always check whether AusNet Services has been able to grow its dividends, or if the dividend might be cut.
View our latest analysis for AusNet Services
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. AusNet Services distributed an unsustainably high 118% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out an unsustainably high 371% of its free cash flow as dividends over the past 12 months, which is worrying. Unless there were something in the business we're not grasping, this could signal a risk that the dividend may have to be cut in the future.
Cash is slightly more important than profit from a dividend perspective, but given AusNet Services's payouts were not well covered by either earnings or cash flow, we would be concerned about the sustainability of this dividend.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. Readers will understand then, why we're concerned to see AusNet Services's earnings per share have dropped 10% a year over the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, AusNet Services has lifted its dividend by approximately 1.7% a year on average.
To Sum It Up
Is AusNet Services an attractive dividend stock, or better left on the shelf? It's looking like an unattractive opportunity, with its earnings per share declining, while, paying out an uncomfortably high percentage of both its profits (118%) and cash flow as dividends. This is a starkly negative combination that often suggests a dividend cut could be in the company's near future. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.
With that being said, if you're still considering AusNet Services as an investment, you'll find it beneficial to know what risks this stock is facing. Be aware that AusNet Services is showing 4 warning signs in our investment analysis, and 3 of those are potentially serious...
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.
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