ASX (ASX:ASX) Is Paying Out Less In Dividends Than Last Year

ASX Limited's (ASX:ASX) dividend is being reduced from last year's payment covering the same period to A$1.16 on the 29th of March. However, the dividend yield of 3.5% still remains in a typical range for the industry.

Check out our latest analysis for ASX

ASX's Earnings Easily Cover The Distributions

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Prior to this announcement, the company was paying out 138% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 42%. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

EPS is set to grow by 74.8% over the next year. If recent patterns in the dividend continues, the payout ratio in 12 months could be 81% which is a bit high but can definitely be sustainable.

ASX Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2013, the dividend has gone from A$1.78 total annually to A$2.36. This means that it has been growing its distributions at 2.9% per annum over that time. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.

Dividend Growth Is Doubtful

Investors could be attracted to the stock based on the quality of its payment history. However, initial appearances might be deceiving. ASX has seen earnings per share falling at 5.7% per year over the last five years. 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.

Our Thoughts On ASX's Dividend

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The company has been bring in plenty of cash to cover the dividend, but we don't necessarily think that makes it a great dividend stock. Overall, we don't think this company has the makings of a good income stock.

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. For instance, we've picked out 2 warning signs for ASX that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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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.