Ashmore Group PLC (LON:ASHM) will pay a dividend of £0.121 on the 9th of December. Based on this payment, the dividend yield on the company's stock will be 9.1%, which is an attractive boost to shareholder returns.
Our analysis indicates that ASHM is potentially undervalued!
Ashmore Group Is Paying Out More Than It Is Earning
A big dividend yield for a few years doesn't mean much if it can't be sustained. Based on the last payment, Ashmore Group's profits didn't cover the dividend, but the company was generating enough cash instead. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.
Earnings per share is forecast to rise by 11.3% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could reach 113%, which probably can't continue without putting some pressure on the balance sheet.
Ashmore Group Has A Solid Track Record
The company has an extended history of paying stable dividends. The annual payment during the last 10 years was £0.146 in 2012, and the most recent fiscal year payment was £0.169. This works out to be a compound annual growth rate (CAGR) of approximately 1.5% a year over that time. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.
The Dividend Has Limited Growth Potential
The company's investors will be pleased to have been receiving dividend income for some time. However, initial appearances might be deceiving. Over the past five years, it looks as though Ashmore Group's EPS has declined at around 12% a year. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.
In Summary
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Ashmore Group's payments, as there could be some issues with sustaining them into the future. The company has been bring in plenty of cash to cover the dividend, but we don't necessarily think that makes it a great dividend stock. This company is not in the top tier of income providing stocks.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 3 warning signs for Ashmore Group that investors should take into consideration. 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 LSE:ASHM
Flawless balance sheet with proven track record and pays a dividend.
