Data#3 (ASX:DTL) Is Paying Out A Larger Dividend Than Last Year

Data#3 Limited (ASX:DTL) has announced that it will be increasing its dividend from last year's comparable payment on the 29th of September to A$0.119. This will take the dividend yield to an attractive 3.1%, providing a nice boost to shareholder returns.

View our latest analysis for Data#3

Data#3's Dividend Is Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. The last payment made up 91% of earnings, but cash flows were much higher. This leaves plenty of cash for reinvestment into the business.

EPS is set to grow by 34.8% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 77%, which is on the higher side, but certainly still feasible.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2013, the dividend has gone from A$0.07 total annually to A$0.219. This means that it has been growing its distributions at 12% per annum over that time. Data#3 has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

Dividend Growth Could Be Constrained

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Data#3 has seen EPS rising for the last five years, at 21% per annum. Earnings per share is growing nicely, but the company is paying out most of its earnings as dividends. This might be sustainable, but we wonder why Data#3 is not retaining those earnings to reinvest in growth.

Our Thoughts On Data#3's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Data#3's payments are rock solid. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 1 warning sign for Data#3 that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection 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.