Australian Finance Group (ASX:AFG) Is Increasing Its Dividend To AU$0.074

By
Simply Wall St
Published
September 03, 2021
ASX:AFG
Source: Shutterstock

Australian Finance Group Limited's (ASX:AFG) dividend will be increasing to AU$0.074 on 23rd of September. This will take the annual payment from 4.4% to 4.4% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for Australian Finance Group

Australian Finance Group'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. The last dividend was quite easily covered by Australian Finance Group's earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

Looking forward, earnings per share is forecast to rise by 17.7% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 64% by next year, which is in a pretty sustainable range.

historic-dividend
ASX:AFG Historic Dividend September 3rd 2021

Australian Finance Group's Dividend Has Lacked Consistency

Australian Finance Group has been paying dividends for a while, but the track record isn't stellar. This suggests that the dividend might not be the most reliable. Since 2015, the first annual payment was AU$0.043, compared to the most recent full-year payment of AU$0.13. This implies that the company grew its distributions at a yearly rate of about 21% over that duration. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Australian Finance Group has impressed us by growing EPS at 13% per year over the past five years. Earnings are on the uptrend, and it is only paying a small portion of those earnings to shareholders.

Australian Finance Group Looks Like A Great Dividend Stock

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. Earnings are easily covering distributions, and the company is generating plenty of cash. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 1 warning sign for Australian Finance Group that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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