Brambles (ASX:BXB) Will Pay A Larger Dividend Than Last Year At $0.1767

Brambles Limited (ASX:BXB) has announced that it will be increasing its dividend from last year's comparable payment on the 13th of April to $0.1767. Based on this payment, the dividend yield for the company will be 2.8%, which is fairly typical for the industry.

Check out our latest analysis for Brambles

Brambles' Payment Has Solid Earnings Coverage

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Before making this announcement, Brambles was earning enough to cover the dividend, but it wasn't generating any free cash flows. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

The next year is set to see EPS grow by 34.7%. If the dividend continues on this path, the payout ratio could be 60% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of $0.265 in 2013 to the most recent total annual payment of $0.245. Payments have been decreasing at a very slow pace in this time period. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Dividend Growth May Be Hard To Achieve

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. Brambles hasn't seen much change in its earnings per share over the last five years.

Brambles' Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think Brambles' payments are rock solid. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We don't think Brambles is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 3 warning signs for Brambles that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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