Ashmore Group (LON:ASHM) Will Pay A Dividend Of £0.121

Ashmore Group Plc (LON:ASHM) has announced that it will pay a dividend of £0.121 per share on the 8th of December. Based on this payment, the dividend yield on the company's stock will be 9.0%, which is an attractive boost to shareholder returns.

View our latest analysis for Ashmore Group

Ashmore Group Is Paying Out More Than It Is Earning

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, the company was paying out 136% of what it was earning. This situation certainly isn't ideal, and could place significant strain on the balance sheet if it continues.

Earnings per share is forecast to rise by 7.0% over the next year. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 126% over the next year.

Ashmore Group Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2013, the dividend has gone from £0.15 total annually to £0.169. This works out to be a compound annual growth rate (CAGR) of approximately 1.2% a year over that time. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.

The Dividend Has Limited Growth Potential

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, things aren't all that rosy. Over the past five years, it looks as though Ashmore Group's EPS has declined at around 11% a year. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

Ashmore Group's Dividend Doesn't Look Sustainable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for Ashmore Group that investors need to be conscious of moving forward. 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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