Some investors rely on dividends for growing their wealth, and if you’re one of those dividend sleuths, you might be intrigued to know that Auswide Bank Ltd (ASX:ABA) is about to go ex-dividend in just 4 days. If you purchase the stock on or after the 9th of September, you won’t be eligible to receive this dividend, when it is paid on the 20th of September.
Auswide Bank’s upcoming dividend is AU$0.18 a share, following on from the last 12 months, when the company distributed a total of AU$0.34 per share to shareholders. Based on the last year’s worth of payments, Auswide Bank stock has a trailing yield of around 5.9% on the current share price of A$5.8. If you buy this business for its dividend, you should have an idea of whether Auswide Bank’s dividend is reliable and sustainable. That’s why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. It paid out 85% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We’d be concerned if earnings began to decline.
When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.
Have Earnings And Dividends Been Growing?
Companies that aren’t growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we’re not enthused to see that Auswide Bank’s earnings per share have remained effectively flat over the past five years. It’s better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.
The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. Auswide Bank has seen its dividend decline 5.8% per annum on average over the past ten years, which is not great to see.
Has Auswide Bank got what it takes to maintain its dividend payments? Auswide Bank’s earnings are effectively flat over recent years, even as the company pays out more than half of its earnings to shareholders as dividends. In sum this is a middling combination, and we find it hard to get excited about the company from a dividend perspective.
Curious what other investors think of Auswide Bank? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.
We wouldn’t recommend just buying the first dividend stock you see, though. Here’s a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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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. Thank you for reading.