Accent Group (ASX:AX1) Is Paying Out A Larger Dividend Than Last Year

The board of Accent Group Limited (ASX:AX1) has announced that it will be paying its dividend of A$0.04 on the 15th of September, an increased payment from last year's comparable dividend. Although the dividend is now higher, the yield is only 3.8%, which is below the industry average.

View our latest analysis for Accent Group

Accent Group's Payment Has Solid Earnings Coverage

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Prior to this announcement, the company was paying out 112% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 40%. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

Looking forward, earnings per share is forecast to rise by 174.6% over the next year. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 44% which would be quite comfortable going to take the dividend forward.

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$0.03 in 2012 to the most recent total annual payment of A$0.065. This implies that the company grew its distributions at a yearly rate of about 8.0% over that duration. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

The Dividend's Growth Prospects Are Limited

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Accent Group hasn't seen much change in its earnings per share over the last five years. The company is paying out a lot of its profits, even though it is growing those profits pretty slowly. As they say in finance, 'past performance is not indicative of future performance', but we are not confident a company with limited earnings growth and a high payout ratio will be a star dividend-payer over the next decade.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. 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. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 2 warning signs for Accent Group that investors should know about before committing capital to this stock. Is Accent Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.