Elders (ASX:ELD) Is Increasing Its Dividend To AU$0.28

Elders Limited (ASX:ELD) has announced that it will be increasing its dividend on the 17th of June to AU$0.28. The announced payment will take the dividend yield to 3.6%, which is in line with the average for the industry.

See our latest analysis for Elders

Elders' Payment Has Solid Earnings Coverage

Unless the payments are sustainable, the dividend yield doesn't mean too much. Prior to this announcement, Elders' dividend was only 45% of earnings, however it was paying out 176% of free cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

EPS is set to fall by 11.1% over the next 12 months. Assuming the dividend continues along recent trends, we believe the payout ratio could be 67%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Elders Is Still Building Its Track Record

Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. The first annual payment during the last 5 years was AU$0.075 in 2017, and the most recent fiscal year payment was AU$0.56. This implies that the company grew its distributions at a yearly rate of about 49% over that duration. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.

Elders Could Grow Its Dividend

The company's investors will be pleased to have been receiving dividend income for some time. Elders has seen EPS rising for the last five years, at 8.9% per annum. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.

Our Thoughts On Elders' Dividend

Overall, we always like to see the dividend being raised, but we don't think Elders will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 2 warning signs for Elders (1 shouldn't be ignored!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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