Diversified United Investment (ASX:DUI) Will Pay A Dividend Of A$0.09

Diversified United Investment Limited (ASX:DUI) will pay a dividend of A$0.09 on the 19th of September. Including this payment, the dividend yield on the stock will be 3.0%, which is a modest boost for shareholders' returns.

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Diversified United Investment's Future Dividend Projections Appear Well Covered By Earnings

Even a low dividend yield can be attractive if it is sustained for years on end. Prior to this announcement, Diversified United Investment was paying out 91% of earnings and more than 75% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but we don't think that there are necessarily signs that the dividend might be unsustainable.

Over the next year, EPS could expand by 4.4% if the company continues along the path it has been on recently. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 88%, which is definitely on the higher side, but we wouldn't necessarily say this is unsustainable.

View our latest analysis for Diversified United Investment

Diversified United Investment Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2015, the annual payment back then was A$0.14, compared to the most recent full-year payment of A$0.16. This means that it has been growing its distributions at 1.3% 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 May Be Hard To Achieve

Investors could be attracted to the stock based on the quality of its payment history. Earnings have grown at around 4.4% a year for the past five years, which isn't massive but still better than seeing them shrink. Diversified United Investment'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. That's fine as far as it goes, but we're less enthusiastic as this often signals that the dividend is likely to grow slower in the future.

In Summary

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. Although they have been consistent in the past, we think the payments are a little high to be sustained. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign for Diversified United Investment that investors need to be conscious of moving forward. 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.