Lottery (ASX:TLC) Is Increasing Its Dividend To A$0.105

The board of The Lottery Corporation Limited (ASX:TLC) has announced that it will be paying its dividend of A$0.105 on the 25th of September, an increased payment from last year's comparable dividend. This will take the annual payment to 3.8% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for Lottery

Lottery's Payment Has Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Lottery was paying out 86% of earnings and more than 75% of free cash flows. This is usually an indication that the focus of the company is returning cash to shareholders rather than reinvesting it for growth.

Earnings per share is forecast to rise by 13.2% over the next year. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 88% - on the higher side, but we wouldn't necessarily say this is unsustainable.

Lottery's Dividend Has Lacked Consistency

Even in its short history, we have seen the dividend cut. Since 2022, the annual payment back then was A$0.16, compared to the most recent full-year payment of A$0.185. This implies that the company grew its distributions at a yearly rate of about 7.5% over that duration. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Lottery might have put its house in order since then, but we remain cautious.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. However, Lottery's EPS was effectively flat over the past three years, which could stop the company from paying more every year. Earnings are not growing quickly at all, and the company is paying out most of its profit as dividends. When a company prefers to pay out cash to its shareholders instead of reinvesting it, this can often say a lot about that company's dividend prospects.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Lottery will make a great income stock. The track record isn't great, and the payments are a bit high to be considered sustainable. This company is not in the top tier of income providing stocks.

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. For instance, we've picked out 2 warning signs for Lottery that investors should take into consideration. 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.