Readers hoping to buy Austal Limited (ASX:ASB) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You can purchase shares before the 16th of March in order to receive the dividend, which the company will pay on the 17th of April.
Austal’s upcoming dividend is AU$0.03 a share, following on from the last 12 months, when the company distributed a total of AU$0.06 per share to shareholders. Looking at the last 12 months of distributions, Austal has a trailing yield of approximately 1.8% on its current stock price of A$3.26. 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 Austal can afford its dividend, and if the dividend could grow.
Check out our latest analysis for Austal
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Fortunately Austal’s payout ratio is modest, at just 27% 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. Thankfully its dividend payments took up just 37% of the free cash flow it generated, which is a comfortable payout ratio.
It’s positive to see that Austal’s dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.
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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, Austal’s earnings per share have been growing at 19% a year for the past five years. Earnings per share are growing rapidly and the company is keeping more than half of its earnings within the business; an attractive combination which could suggest the company is focused on reinvesting to grow earnings further. This will make it easier to fund future growth efforts and we think this is an attractive combination – plus the dividend can always be increased later.
Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. It looks like the Austal dividends are largely the same as they were ten years ago.
To Sum It Up
Is Austal an attractive dividend stock, or better left on the shelf? Austal has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it’s cut the dividend at least once in the past ten years, but the conservative payout ratio makes the current dividend look sustainable. Overall we think this is an attractive combination and worthy of further research.
On that note, you’ll want to research what risks Austal is facing. For example – Austal 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.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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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