AJ Bell (LON:AJB) Has Announced That It Will Be Increasing Its Dividend To UK£0.095

The board of AJ Bell plc (LON:AJB) has announced that the dividend on 4th of February will be increased to UK£0.095, which will be 104% higher than last year. The announced payment will take the dividend yield to 3.2%, which is in line with the average for the industry.

Check out our latest analysis for AJ Bell

AJ Bell Doesn't Earn Enough To Cover Its Payments

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Prior to this announcement, AJ Bell's dividend was comfortably covered by both cash flow and earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

Over the next year, EPS is forecast to expand by 1.1%. If the dividend continues on its recent course, the payout ratio in 12 months could be 130%, which is a bit high and could start applying pressure to the balance sheet.

AJ Bell Is Still Building Its Track Record

The company has maintained a consistent dividend for a few years now, but we would like to see a longer track record before relying on it. Since 2018, the dividend has gone from UK£0.03 to UK£0.07. This implies that the company grew its distributions at a yearly rate of about 32% over that duration. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. We are encouraged to see that AJ Bell has grown earnings per share at 26% per year over the past five years. AJ Bell is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.

AJ Bell Looks Like A Great Dividend Stock

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. Earnings are easily covering distributions, and the company is generating plenty of cash. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 1 warning sign for AJ Bell that investors should take into consideration. 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.