Accent Group (ASX:AX1) Is Paying Out Less In Dividends Than Last Year

By
Simply Wall St
Published
August 20, 2021
ASX:AX1
Source: Shutterstock

Accent Group Limited (ASX:AX1) has announced it will be reducing its dividend payable on the 16th of September to AU$0.033. This means the annual payment is 5.2% of the current stock price, which is above the average for the industry.

Check out our latest analysis for Accent Group

Accent Group Doesn't Earn Enough To Cover Its Payments

If the payments aren't sustainable, a high yield for a few years won't matter that much. The last payment made up 87% of earnings, but cash flows were much higher. 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.

Looking forward, earnings per share is forecast to fall by 5.3% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 99%, which could put the dividend in jeopardy if the company's earnings don't improve.

historic-dividend
ASX:AX1 Historic Dividend August 20th 2021

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. Since 2011, the first annual payment was AU$0.035, compared to the most recent full-year payment of AU$0.11. This means that it has been growing its distributions at 12% per annum over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

Accent Group Might Find It Hard To Grow Its Dividend

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. Accent Group has seen EPS rising for the last five years, at 20% per annum. EPS is growing rapidly, although the company is also paying out a large portion of its profits as dividends. If earnings keep growing, the dividend may be sustainable, but generally we'd prefer to see a fast growing company reinvest in further growth.

Our Thoughts On Accent Group's Dividend

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. 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 be a touch cautious of relying on this stock primarily for the dividend income.

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. Taking the debate a bit further, we've identified 2 warning signs for Accent Group that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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