Stock Analysis

ASX's (ASX:ASX) Dividend Will Be Increased To A$1.20

  •  Updated
Source: Shutterstock

ASX Limited's (ASX:ASX) dividend will be increasing from last year's payment of the same period to A$1.20 on 28th of September. This takes the annual payment to 2.9% of the current stock price, which unfortunately is below what the industry is paying.

Check out our latest analysis for ASX

ASX's Dividend Is Well Covered By Earnings

Even a low dividend yield can be attractive if it is sustained for years on end. Before making this announcement, ASX was paying out quite a large proportion of both earnings and cash flow, with the dividend being 468% of cash flows. Paying out such a high proportion of cash flows certainly exposes the company to cutting the dividend if cash flows were to reduce.

EPS is set to grow by 12.1% over the next year. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 83% - on the higher side, but we wouldn't necessarily say this is unsustainable.

ASX:ASX Historic Dividend August 21st 2022

ASX Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2012, the annual payment back then was A$1.78, compared to the most recent full-year payment of A$2.36. This means that it has been growing its distributions at 2.9% per annum 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 who have held shares in the company for the past few years will be happy with the dividend income they have received. Earnings have grown at around 3.2% a year for the past five years, which isn't massive but still better than seeing them shrink. ASX's earnings per share has barely grown, which is not ideal - perhaps this is why the company pays out the majority of its earnings to shareholders. 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.

ASX's Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think ASX will make a great income stock. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 1 warning sign for ASX that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

Valuation is complex, but we're helping make it simple.

Find out whether ASX is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis