Steadfast Group (ASX:SDF) Has Announced A Dividend Of A$0.0675

Steadfast Group Limited (ASX:SDF) has announced that it will pay a dividend of A$0.0675 per share on the 28th of March. This takes the annual payment to 2.6% of the current stock price, which is about average for the industry.

View our latest analysis for Steadfast Group

Steadfast Group's Dividend Is Well Covered By Earnings

Unless the payments are sustainable, the dividend yield doesn't mean too much. The last payment made up 81% of earnings, but cash flows were much higher. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

Looking forward, earnings per share is forecast to rise by 47.1% over the next year. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 66% which brings it into quite a comfortable range.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the dividend has gone from A$0.036 total annually to A$0.15. This implies that the company grew its distributions at a yearly rate of about 15% over that duration. Steadfast Group has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

Dividend Growth Could Be Constrained

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. We are encouraged to see that Steadfast Group has grown earnings per share at 12% per year over the past five years. The payout ratio is very much on the higher end, which could mean that the growth rate will slow down in the future, and that could flow through to the dividend as well.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. 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. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 2 warning signs for Steadfast Group that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.