AJ Bell (LON:AJB) Is Paying Out A Larger Dividend Than Last Year

AJ Bell plc (LON:AJB) will increase its dividend on the 1st of July to UK£0.028. This makes the dividend yield 4.5%, which is above the industry average.

See our latest analysis for AJ Bell

AJ Bell Doesn't Earn Enough To Cover Its Payments

A big dividend yield for a few years doesn't mean much if it can't be sustained. The last payment made up 76% of earnings, but cash flows were much higher. This leaves plenty of cash for reinvestment into the business.

The next 12 months is set to see EPS grow by 12.0%. However, if the dividend continues growing along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 136% over the next year.

AJ Bell Doesn't Have A Long Payment History

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. The first annual payment during the last 3 years was UK£0.03 in 2019, and the most recent fiscal year payment was UK£0.07. This works out to be a compound annual growth rate (CAGR) of approximately 32% a year over that time. 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.

AJ Bell's Dividend Might Lack Growth

Investors could be attracted to the stock based on the quality of its payment history. It's encouraging to see AJ Bell has been growing its earnings per share at 19% a year over the past five years. The payout ratio is very much on the higher end, which could mean that the growth rate will slow down in the future, and that could flow through to the dividend as well.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would probably look elsewhere for an income investment.

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. 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.

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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.