Qantas Airways Limited (ASX:QAN) stock is about to trade ex-dividend in 4 days time. This means that investors who purchase shares on or after the 2nd of March will not receive the dividend, which will be paid on the 9th of April.
Qantas Airways’s next dividend payment will be AU$0.14 per share. Last year, in total, the company distributed AU$0.27 to shareholders. Based on the last year’s worth of payments, Qantas Airways stock has a trailing yield of around 4.7% on the current share price of A$5.72. We love seeing companies pay a dividend, but it’s also important to be sure that laying the golden eggs isn’t going to kill our golden goose! So we need to investigate whether Qantas Airways can afford its dividend, and if the dividend could grow.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. Fortunately Qantas Airways’s payout ratio is modest, at just 48% of profit. 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. Dividends consumed 51% of the company’s free cash flow last year, which is within a normal range for most dividend-paying organisations.
It’s encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don’t drop precipitously.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it’s easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. That’s why it’s comforting to see Qantas Airways’s earnings have been skyrocketing, up 30% per annum for the past five years.
The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. Qantas Airways has delivered an average of 40% per year annual increase in its dividend, based on the past four years of dividend payments. It’s exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
To Sum It Up
Should investors buy Qantas Airways for the upcoming dividend? From a dividend perspective, we’re encouraged to see that earnings per share have been growing, the company is paying out less than half of its earnings, and a bit over half its free cash flow. Overall we think this is an attractive combination and worthy of further research.
Ever wonder what the future holds for Qantas Airways? See what the ten analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
If you’re in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned.
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