Computershare's (ASX:CPU) Shareholders Will Receive A Bigger Dividend Than Last Year

Computershare Limited's (ASX:CPU) dividend will be increasing from last year's payment of the same period to $0.40 on 18th of September. Despite this raise, the dividend yield of 2.4% is only a modest boost to shareholder returns.

See our latest analysis for Computershare

Computershare's Dividend Is Well Covered By Earnings

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Before making this announcement, Computershare was paying out quite a large proportion of both earnings and cash flow, with the dividend being 96% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.

The next year is set to see EPS grow by 118.6%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 64% which brings it into quite a comfortable range.

Computershare Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The dividend has gone from an annual total of $0.285 in 2013 to the most recent total annual payment of $0.384. This works out to be a compound annual growth rate (CAGR) of approximately 3.0% a year over that time. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.

Dividend Growth May Be Hard To Achieve

The company's investors will be pleased to have been receiving dividend income for some time. Let's not jump to conclusions as things might not be as good as they appear on the surface. Computershare hasn't seen much change in its earnings per share over the last five years.

The Dividend Could Prove To Be Unreliable

In summary, while it's always good to see the dividend being raised, we don't think Computershare's payments are rock solid. Although they have been consistent in the past, we think the payments are a little high to be sustained. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 1 warning sign for Computershare 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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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.