Stock Analysis

Clover (ASX:CLV) Is Paying Out A Larger Dividend Than Last Year

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The board of Clover Corporation Limited (ASX:CLV) has announced that the dividend on 27th of April will be increased to A$0.0075, which will be 50% higher than last year's payment of A$0.005 which covered the same period. Although the dividend is now higher, the yield is only 1.6%, which is below the industry average.

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Clover's Dividend Is Well Covered By Earnings

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Prior to this announcement, Clover's dividend was only 33% of earnings, however it was paying out 105% of free cash flows. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

The next year is set to see EPS grow by 37.7%. If the dividend continues along recent trends, we estimate the payout ratio will be 26%, which is in the range that makes us comfortable with the sustainability of the dividend.

ASX:CLV Historic Dividend March 17th 2023

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of A$0.0175 in 2013 to the most recent total annual payment of A$0.02. This implies that the company grew its distributions at a yearly rate of about 1.3% over that duration. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

We Could See Clover's Dividend Growing

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. It's encouraging to see that Clover has been growing its earnings per share at 8.4% a year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

Our Thoughts On Clover's Dividend

Overall, we always like to see the dividend being raised, but we don't think Clover will make a great income stock. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Now, if you want to look closer, it would be worth checking out our free research on Clover management tenure, salary, and performance. Is Clover not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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