Argo Investments (ASX:ARG) Has Announced That It Will Be Increasing Its Dividend To AU$0.16

Argo Investments Limited (ASX:ARG) has announced that it will be increasing its dividend on the 11th of March to AU$0.16. Based on the announced payment, the dividend yield for the company will be 2.9%, which is fairly typical for the industry.

See our latest analysis for Argo Investments

Argo Investments' 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, Argo Investments was paying out quite a large proportion of both earnings and cash flow, with the dividend being 158% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.

Over the next year, EPS could expand by 1.4% if the company continues along the path it has been on recently. If the dividend continues growing along recent trends, we estimate the payout ratio could reach 92%, which is on the higher side, but certainly still feasible.

Argo Investments Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2012, the first annual payment was AU$0.26, compared to the most recent full-year payment of AU$0.32. This works out to be a compound annual growth rate (CAGR) of approximately 2.1% 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.

The Dividend's Growth Prospects Are Limited

Investors could be attracted to the stock based on the quality of its payment history. However, Argo Investments' EPS was effectively flat over the past five 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. This isn't the end of the world, but for investors looking for strong dividend growth they may want to look elsewhere.

Argo Investments' Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think Argo Investments' payments are rock solid. Although they have been consistent in the past, we think the payments are a little high to be sustained. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 2 warning signs for Argo Investments you should be aware of, and 1 of them is concerning. We have also put together a list of global stocks with a solid dividend.

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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.