Dalrymple Bay Infrastructure (ASX:DBI) Is Increasing Its Dividend To A$0.0538

Dalrymple Bay Infrastructure Limited (ASX:DBI) has announced that it will be increasing its dividend from last year's comparable payment on the 19th of March to A$0.0538. This will take the annual payment to 7.7% of the stock price, which is above what most companies in the industry pay.

View our latest analysis for Dalrymple Bay Infrastructure

Dalrymple Bay Infrastructure's Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, the company was paying out 139% of what it was earning and 78% of cash flows. The company could be more focused on returning cash to shareholders, but this could indicate that growth opportunities are few and far between.

If the trend of the last few years continues, EPS will grow by 132.6% over the next 12 months. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 60% which would be quite comfortable going to take the dividend forward.

Dalrymple Bay Infrastructure Is Still Building Its Track Record

The dividend has been pretty stable looking back, but the company hasn't been paying one for very long. This makes it tough to judge how it would fare through a full economic cycle. Since 2021, the dividend has gone from A$0.18 total annually to A$0.215. This means that it has been growing its distributions at 6.1% per annum over that time. Dalrymple Bay Infrastructure has been growing its dividend at a decent rate, and the payments have been stable. However, the payment history is very short, so there is no evidence yet that the dividend can be sustained over a full economic cycle.

Dividend Growth Could Be Constrained

Investors could be attracted to the stock based on the quality of its payment history. Dalrymple Bay Infrastructure has impressed us by growing EPS at 133% per year over the past three years. While EPS is growing rapidly, Dalrymple Bay Infrastructure paid out a very high 139% of its income as dividends. If earnings continue to grow, this dividend may be sustainable, but we think a payout this high definitely bears watching.

Dalrymple Bay Infrastructure's Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think Dalrymple Bay Infrastructure'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. We don't think Dalrymple Bay Infrastructure is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Dalrymple Bay Infrastructure has 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about. Is Dalrymple Bay Infrastructure not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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