There's A Lot To Like About Accent Group's (ASX:AX1) Upcoming AU$0.08 Dividend

Accent Group Limited (ASX:AX1) is about to trade ex-dividend in the next four days. Ex-dividend means that investors that purchase the stock on or after the 10th of March will not receive this dividend, which will be paid on the 18th of March.

Accent Group's next dividend payment will be AU$0.08 per share. Last year, in total, the company distributed AU$0.12 to shareholders. Last year's total dividend payments show that Accent Group has a trailing yield of 5.5% on the current share price of A$2.19. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for Accent Group

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater 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. A useful secondary check can be to evaluate whether Accent Group generated enough free cash flow to afford its dividend. It distributed 28% 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. It's encouraging to see Accent Group has grown its earnings rapidly, up 30% a year for the past five years. The company is paying out more than three-quarters of its earnings, but it is also generating strong earnings growth.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Accent Group has delivered an average of 13% per year annual increase in its dividend, based on the past 10 years of dividend payments. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

Final Takeaway

Should investors buy Accent Group for the upcoming dividend? We like Accent Group's growing earnings per share and the fact that - while its payout ratio is around average - it paid out a lower percentage of its cash flow. Accent Group looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

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.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

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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. 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.
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