Just Life Group's (NZSE:JLG) Dividend Is Being Reduced To NZ$0.0035

The board of Just Life Group Limited (NZSE:JLG) has announced that the dividend on 18th of March will be reduced by 40% from last year's NZ$0.0059 to NZ$0.0035. This means that the dividend yield is 4.8%, which is a bit low when comparing to other companies in the industry.

See our latest analysis for Just Life Group

Just Life Group's Dividend Is Well Covered By Earnings

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Before this announcement, Just Life Group was paying out 70% of earnings, but a comparatively small 27% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

Unless the company can turn things around, EPS could fall by 6.3% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 69%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Just Life Group's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. This suggests that the dividend might not be the most reliable. Since 2017, the annual payment back then was NZ$0.02, compared to the most recent full-year payment of NZ$0.012. Doing the maths, this is a decline of about 7.0% per year. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Dividend Growth May Be Hard To Come By

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Over the past five years, it looks as though Just Life Group's EPS has declined at around 6.3% a year. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed.

In Summary

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. 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 be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Just Life Group has 5 warning signs (and 3 which are concerning) we think you should know about. Is Just Life Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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