Australian Finance Group (ASX:AFG) Is Paying Out Less In Dividends Than Last Year

Australian Finance Group Limited's (ASX:AFG) dividend is being reduced from last year's payment covering the same period to A$0.041 on the 22nd of September. However, the dividend yield of 6.9% is still a decent boost to shareholder returns.

See our latest analysis for Australian Finance Group

Australian Finance Group's Dividend Is Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. The last payment made up 77% of earnings, but cash flows were much higher. This leaves plenty of cash for reinvestment into the business.

Looking forward, earnings per share is forecast to rise by 25.2% over the next year. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 67% which brings it into quite a comfortable range.

Australian Finance Group's Dividend Has Lacked Consistency

Australian Finance Group has been paying dividends for a while, but the track record isn't stellar. This makes us cautious about the consistency of the dividend over a full economic cycle. The annual payment during the last 8 years was A$0.0426 in 2015, and the most recent fiscal year payment was A$0.107. This implies that the company grew its distributions at a yearly rate of about 12% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

Australian Finance Group 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. Over the past five years, it looks as though Australian Finance Group's EPS has declined at around 2.3% a year. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.

In Summary

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. 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 would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 2 warning signs for Australian Finance Group (of which 1 is potentially serious!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.