Accent Group Limited (ASX:AX1) Is About To Go Ex-Dividend, And It Pays A 6.4% Yield

Accent Group Limited (ASX:AX1) is about to trade ex-dividend in the next four days. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Accordingly, Accent Group investors that purchase the stock on or after the 5th of March will not receive the dividend, which will be paid on the 20th of March.

The company's upcoming dividend is AU$0.055 a share, following on from the last 12 months, when the company distributed a total of AU$0.13 per share to shareholders. Calculating the last year's worth of payments shows that Accent Group has a trailing yield of 6.4% on the current share price of AU$2.04. If you buy this business for its dividend, you should have an idea of whether Accent Group's dividend is reliable and sustainable. So we need to investigate whether Accent Group can afford its dividend, and if the dividend could grow.

View our latest analysis for Accent Group

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Its dividend payout ratio is 87% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be concerned if earnings began to decline. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It distributed 38% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that Accent Group's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

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

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see Accent Group earnings per share are up 2.6% per annum over the last five years. A high payout ratio of 87% generally happens when a company can't find better uses for the cash. Combined with slim earnings growth in the past few years, Accent Group could be signalling that its future growth prospects are thin.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Accent Group has delivered 11% dividend growth per year on average over the past 10 years. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

To Sum It Up

Is Accent Group an attractive dividend stock, or better left on the shelf? While earnings per share growth has been modest, Accent Group's dividend payouts are around an average level; without a sharp change in earnings we feel that the dividend is likely somewhat sustainable. Pleasingly the company paid out a conservatively low percentage of its free cash flow. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.

While it's tempting to invest in Accent Group for the dividends alone, you should always be mindful of the risks involved. For example, we've found 1 warning sign for Accent Group that we recommend you consider before investing in the business.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.