Regular readers will know that we love our dividends at Simply Wall St, which is why it’s exciting to see Link Administration Holdings Limited (ASX:LNK) is about to trade ex-dividend in the next 3 days. This means that investors who purchase shares on or after the 4th of September will not receive the dividend, which will be paid on the 10th of October.
Link Administration Holdings’s upcoming dividend is AU$0.13 a share, following on from the last 12 months, when the company distributed a total of AU$0.20 per share to shareholders. Based on the last year’s worth of payments, Link Administration Holdings has a trailing yield of 3.7% on the current stock price of A$5.48. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Link Administration Holdings has been able to grow its dividends, or if the dividend might be cut.
See our latest analysis for Link Administration Holdings
If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. Link Administration Holdings has a low and conservative payout ratio of just 25% of its income after tax. 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. Dividends consumed 69% of the company’s free cash flow last year, which is within a normal range for most dividend-paying organisations.
It’s encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don’t drop precipitously.
Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it’s easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That’s why it’s comforting to see Link Administration Holdings’s earnings have been skyrocketing, up 56% per annum for the past five years.
The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. Link Administration Holdings has delivered an average of 37% per year annual increase in its dividend, based on the past three years of dividend payments. It’s exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
The Bottom Line
Has Link Administration Holdings got what it takes to maintain its dividend payments? Earnings per share have grown at a nice rate in recent times and over the last year, Link Administration Holdings paid out less than half its earnings and a bit over half its free cash flow. Link Administration Holdings looks solid on this analysis overall, and we’d definitely consider investigating it more closely.
Wondering what the future holds for Link Administration Holdings? See what the nine analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.