Elders (ASX:ELD) Will Pay A Smaller Dividend Than Last Year

Elders Limited (ASX:ELD) is reducing its dividend from last year's comparable payment to A$0.23 on the 20th of December. This means the annual payment is 6.3% of the current stock price, which is above the average for the industry.

Check out our latest analysis for Elders

Elders' Dividend Is Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before this announcement, Elders was paying out 71% of earnings, but a comparatively small 59% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

EPS is set to grow by 11.8% over the next year. If recent patterns in the dividend continues, the payout ratio in 12 months could be 80% which is a bit high but can definitely be sustainable.

Elders Is Still Building Its Track Record

It is great to see that Elders has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. The annual payment during the last 6 years was A$0.075 in 2017, and the most recent fiscal year payment was A$0.46. This works out to be a compound annual growth rate (CAGR) of approximately 35% a year over that time. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.

Dividend Growth May Be Hard To Achieve

The company's investors will be pleased to have been receiving dividend income for some time. However, initial appearances might be deceiving. Unfortunately, Elders' earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year.

Our Thoughts On Elders' Dividend

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 2 warning signs for Elders 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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