Here’s Why We’re Wary Of Buying Domain Holdings Australia Limited’s (ASX:DHG) For Its Upcoming Dividend

Domain Holdings Australia Limited (ASX:DHG) stock is about to trade ex-dividend in 3 days time. You can purchase shares before the 22nd of August in order to receive the dividend, which the company will pay on the 10th of September.

Domain Holdings Australia’s next dividend payment will be AU$0.04 per share, on the back of last year when the company paid a total of AU$0.06 to shareholders. Looking at the last 12 months of distributions, Domain Holdings Australia has a trailing yield of approximately 2.0% on its current stock price of A$2.93. If you buy this business for its dividend, you should have an idea of whether Domain Holdings Australia’s dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it’s growing.

See our latest analysis for Domain Holdings Australia

If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. Domain Holdings Australia reported a loss after tax last year, which means it’s paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term. With the recent loss, it’s important to check if the business generated enough cash to pay its dividend. If Domain Holdings Australia didn’t generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. Dividends consumed 65% of the company’s free cash flow last year, which is within a normal range for most dividend-paying organisations.

Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.

ASX:DHG Historical Dividend Yield, August 18th 2019
ASX:DHG Historical Dividend Yield, August 18th 2019

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. Domain Holdings Australia was unprofitable last year, and sadly its loss per share worsened by 850% on the previous year.

Unfortunately Domain Holdings Australia has only been paying a dividend for a year or so, so there’s not much of a history to draw insight from.

Get our latest analysis on Domain Holdings Australia’s balance sheet health here.

Final Takeaway

Has Domain Holdings Australia got what it takes to maintain its dividend payments? First, it’s not great to see the company paying a dividend despite being loss-making over the last year. On the plus side, the dividend was covered by free cash flow. It’s not that we think Domain Holdings Australia is a bad company, but these characteristics don’t generally lead to outstanding dividend performance.

Ever wonder what the future holds for Domain Holdings Australia? See what the eight analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.