Data#3 (ASX:DTL) Is Increasing Its Dividend To AU$0.095

Data#3 Limited (ASX:DTL) has announced that it will be increasing its dividend on the 30th of September to AU$0.095. This makes the dividend yield about the same as the industry average at 2.8%.

See our latest analysis for Data#3

Data#3 Is Paying Out More Than It Is Earning

We aren't too impressed by dividend yields unless they can be sustained over time. Prior to this announcement, Data#3's dividend was making up a very large proportion of earnings, and the company was also not generating any cash flow to offset this. Generally, we think that this would be a risky long term practice.

The next 12 months is set to see EPS grow by 9.1%. However, if the dividend continues growing along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 96% over the next year.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from AU$0.071 in 2011 to the most recent annual payment of AU$0.15. This works out to be a compound annual growth rate (CAGR) of approximately 7.8% a year over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Data#3 might have put its house in order since then, but we remain cautious.

Data#3's Dividend Might Lack Growth

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. Data#3 has impressed us by growing EPS at 13% per year over the past five years. Recently, the company has been able to grow earnings at a decent rate, but with the payout ratio on the higher end we don't think the dividend has many prospects for growth.

The Dividend Could Prove To Be Unreliable

In summary, while it's always good to see the dividend being raised, we don't think Data#3's payments are rock solid. While we generally think the level of distributions are a bit high, we wouldn't rule it out as becoming a good dividend payer in the future as its earnings are growing healthily. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 1 warning sign for Data#3 that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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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.
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