Brambles (ASX:BXB) Will Pay A Larger Dividend Than Last Year At AU$0.14

Brambles Limited (ASX:BXB) has announced that it will be increasing its dividend on the 14th of October to AU$0.14. Based on the announced payment, the dividend yield for the company will be 2.2%, which is fairly typical for the industry.

View our latest analysis for Brambles

Brambles' Dividend Is Well Covered By Earnings

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Before making this announcement, Brambles was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.

The next year is set to see EPS grow by 10.1%. If the dividend continues on this path, the payout ratio could be 64% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. The first annual payment during the last 10 years was US$0.23 in 2011, and the most recent fiscal year payment was US$0.15. Doing the maths, this is a decline of about 4.2% per year. A company that decreases its dividend over time generally isn't what we are looking for.

Brambles May Find It Hard To Grow The Dividend

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Unfortunately, Brambles' earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Brambles' payments are rock solid. 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 be a touch cautious of relying on this stock primarily for the dividend income.

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 Brambles 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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