SHAPE Australia's (ASX:SHA) Upcoming Dividend Will Be Larger Than Last Year's

SHAPE Australia Corporation Limited's (ASX:SHA) dividend will be increasing from last year's payment of the same period to A$0.065 on 15th of September. This will take the dividend yield to an attractive 7.2%, providing a nice boost to shareholder returns.

Check out our latest analysis for SHAPE Australia

SHAPE Australia's Payment Has Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before this announcement, SHAPE Australia was paying out 91% of earnings, but a comparatively small 47% of free cash flows. This leaves plenty of cash for reinvestment into the business.

Looking forward, earnings per share is forecast to rise by 58.2% over the next year. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 58% which brings it into quite a comfortable range.

SHAPE Australia Doesn't Have A Long Payment History

The company hasn't been paying a dividend for very long at all, so we can't really make a judgement on how stable the dividend has been. This doesn't mean that the company can't pay a good dividend, but just that we want to wait until it can prove itself.

Dividend Growth Could Be Constrained

The company's investors will be pleased to have been receiving dividend income for some time. SHAPE Australia has grown its EPS by 44% over the past 12 months. It's nice to see earnings per share rising, but one year is too short a period to get excited about. Were this trend to continue, we'd be interested. However, SHAPE Australia isn't reinvesting a lot back into the business, so we wonder how quickly it will be able to grow in the future. We do note though, one year is too short a time to be drawing strong conclusions about a company's future prospects.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think SHAPE Australia's payments are rock solid. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We don't think SHAPE Australia 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. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 2 warning signs for SHAPE Australia 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 yield dividend stocks.

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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.