Embelton (ASX:EMB) Has Affirmed Its Dividend Of AU$0.20

The board of Embelton Limited (ASX:EMB) has announced that it will pay a dividend on the 15th of October, with investors receiving AU$0.20 per share. The dividend yield will be 3.3% based on this payment which is still above the industry average.

See our latest analysis for Embelton

Embelton's Earnings Easily Cover the Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. The last dividend was quite easily covered by Embelton's earnings. This means that a large portion of its earnings are being retained to grow the business.

Looking forward, EPS could fall by 6.5% if the company can't turn things around from the last few years. If the dividend continues along recent trends, we estimate the payout ratio could be 66%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. Since 2011, the dividend has gone from AU$0.33 to AU$0.40. This means that it has been growing its distributions at 1.9% per annum over that time. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

Dividend Growth Is Doubtful

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's not great to see that Embelton's earnings per share has fallen at approximately 6.5% per year over the past five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.

Our Thoughts On Embelton's Dividend

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 3 warning signs for Embelton you should be aware of, and 1 of them doesn't sit too well with us. We have also put together a list of global stocks with a solid dividend.

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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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