Auswide Bank's (ASX:ABA) Dividend Will Be Increased To AU$0.21

Auswide Bank Ltd (ASX:ABA) has announced that it will be increasing its dividend on the 24th of September to AU$0.21. This will take the annual payment from 5.9% to 5.9% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for Auswide Bank

Auswide Bank's Dividend Is Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, Auswide Bank was paying out a fairly large proportion of earnings, and it wasn't generating positive free cash flows either. We think that this practice can make the dividend quite risky in the future.

Looking forward, earnings per share is forecast to fall by 5.4% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could reach 76%, which is definitely on the higher side.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The first annual payment during the last 10 years was AU$0.63 in 2011, and the most recent fiscal year payment was AU$0.40. The dividend has shrunk at around 4.4% a year during that period. 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. Auswide Bank has seen EPS rising for the last five years, at 13% per annum. Recently, the company has been able to grow earnings at a decent rate, but with the payout ratio on the higher end we don't think the dividend has many prospects for growth.

Our Thoughts On Auswide Bank's Dividend

Overall, we always like to see the dividend being raised, but we don't think Auswide Bank will make a great income stock. While Auswide Bank is earning enough to cover the payments, the cash flows are lacking. We don't think Auswide Bank is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Auswide Bank has 3 warning signs (and 2 which are potentially serious) we think you should know about. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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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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