APA Group (ASX:APA) has announced that it will be increasing its dividend on the 14th of September to AU$0.28. This takes the dividend yield from 4.4% to 4.6%, which shareholders will be pleased with.
See our latest analysis for APA Group
APA Group 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 making this announcement, the company's dividend was higher than its profits, and made up 94% 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.
Over the next year, EPS is forecast to expand by 92.0%. If the dividend continues on its recent course, the payout ratio in 12 months could be 195%, which is a bit high and could start applying pressure to the balance sheet.
APA Group Has A Solid Track Record
The company has an extended history of paying stable dividends. Since 2012, the first annual payment was AU$0.35, compared to the most recent full-year payment of AU$0.51. This implies that the company grew its distributions at a yearly rate of about 3.8% over that duration. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.
Dividend Growth Is Doubtful
Investors could be attracted to the stock based on the quality of its payment history. However, things aren't all that rosy. Over the past five years, it looks as though APA Group's EPS has declined at around 5.6% a year. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.
APA Group's Dividend Doesn't Look Sustainable
In summary, while it's always good to see the dividend being raised, we don't think APA Group's payments are rock solid. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. We would be a touch cautious of relying on this stock primarily for the dividend income.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 3 warning signs for APA Group (of which 2 make us uncomfortable!) you should know about. 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.
About ASX:APA
Undervalued with solid track record and pays a dividend.
