Aurizon Holdings (ASX:AZJ) Is Increasing Its Dividend To AU$0.14

The board of Aurizon Holdings Limited (ASX:AZJ) has announced that it will be increasing its dividend on the 22nd of September to AU$0.14. This will take the annual payment from 7.3% to 7.3% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for Aurizon Holdings

Aurizon Holdings Is Paying Out More Than It Is Earning

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before this announcement, Aurizon Holdings was paying out 89% of earnings, but a comparatively small 73% of free cash flows. This leaves plenty of cash for reinvestment into the business.

Looking forward, earnings per share is forecast to fall by 12.5% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 105%, which could put the dividend in jeopardy if the company's earnings don't improve.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from AU$0.037 in 2011 to the most recent annual payment of AU$0.29. This implies that the company grew its distributions at a yearly rate of about 23% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

Aurizon Holdings' Dividend Might Lack Growth

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. We are encouraged to see that Aurizon Holdings has grown earnings per share at 56% per year over the past five years. However, Aurizon Holdings isn't reinvesting a lot back into the business, so we wonder how quickly it will be able to grow in the future.

Our Thoughts On Aurizon Holdings' Dividend

Overall, we always like to see the dividend being raised, but we don't think Aurizon Holdings will make a great income stock. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 3 warning signs for Aurizon Holdings (1 is potentially serious!) that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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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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