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Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. Historically, Auswide Bank Ltd (ASX:ABA) has paid a dividend to shareholders. It currently yields 6.2%. Does Auswide Bank tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
How I analyze a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
- Is it the top 25% annual dividend yield payer?
- Does it consistently pay out dividends without missing a payment of significantly cutting payout?
- Has it increased its dividend per share amount over the past?
- Does earnings amply cover its dividend payments?
- Will it have the ability to keep paying its dividends going forward?
How well does Auswide Bank fit our criteria?
The current trailing twelve-month payout ratio for the stock is 82%, which means that the dividend is covered by earnings. Going forward, analysts expect ABA’s payout to remain around the same level at 79% of its earnings. Assuming a constant share price, this equates to a dividend yield of 7.2%. In addition to this, EPS should increase to A$0.45.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.
If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. Dividend payments from Auswide Bank have been volatile in the past 10 years, with some years experiencing significant drops of over 25%. This means that dividend hunters should probably steer clear of the stock, at least for now until the track record improves.
In terms of its peers, Auswide Bank produces a yield of 6.2%, which is high for Mortgage stocks.
Keeping in mind the dividend characteristics above, Auswide Bank is definitely worth considering for investors looking to build a dedicated income portfolio. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. I’ve put together three pertinent aspects you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for ABA’s future growth? Take a look at our free research report of analyst consensus for ABA’s outlook.
- Valuation: What is ABA worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether ABA is currently mispriced by the market.
- Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.