AJ Bell (LON:AJB) Has Announced That It Will Be Increasing Its Dividend To £0.0825

AJ Bell plc's (LON:AJB) dividend will be increasing from last year's payment of the same period to £0.0825 on 7th of February. The payment will take the dividend yield to 2.8%, which is in line with the average for the industry.

Check out our latest analysis for AJ Bell

AJ Bell's Projected Earnings Seem Likely To Cover Future Distributions

Unless the payments are sustainable, the dividend yield doesn't mean too much. The last dividend was quite easily covered by AJ Bell's earnings. This means that a large portion of its earnings are being retained to grow the business.

Looking forward, earnings per share is forecast to rise by 36.4% over the next year. If the dividend continues on this path, the payout ratio could be 52% by next year, which we think can be pretty sustainable going forward.

AJ Bell Doesn't Have A Long Payment History

AJ Bell's dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. Since 2019, the annual payment back then was £0.03, compared to the most recent full-year payment of £0.125. This implies that the company grew its distributions at a yearly rate of about 27% over that duration. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.

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 22% 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. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 1 warning sign for AJ Bell 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 yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.