Alliance Data Systems (NYSE:ADS) Has Re-Affirmed Its Dividend Of US$0.21

Alliance Data Systems Corporation (NYSE:ADS) has announced that it will pay a dividend of US$0.21 per share on the 17th of September. This means that the annual payment will be 0.9% of the current stock price, which is in line with the average for the industry.

See our latest analysis for Alliance Data Systems

Alliance Data Systems' Payment Has Solid Earnings Coverage

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Before making this announcement, Alliance Data Systems was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.

Looking forward, earnings per share is forecast to fall by 11.1% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could be 6.1%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Alliance Data Systems' Dividend Has Lacked Consistency

Alliance Data Systems has been paying dividends for a while, but the track record isn't stellar. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. Since 2016, the first annual payment was US$2.08, compared to the most recent full-year payment of US$0.84. The dividend has fallen 60% over that period. 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.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. It's encouraging to see Alliance Data Systems has been growing its earnings per share at 15% a year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

Alliance Data Systems Looks Like A Great Dividend Stock

Overall, we like to see the dividend staying consistent, and we think Alliance Data Systems might even raise payments in the future. The earnings easily cover the company's distributions, and the company is generating plenty of cash. However, it is worth noting that the earnings are expected to fall over the next year, which may not change the long term outlook, but could affect the dividend payment in the next 12 months. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 5 warning signs for Alliance Data Systems (of which 2 are a bit concerning!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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This article by Simply Wall St is general in nature. 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.
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