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

Alliance Data Systems Corporation's (NYSE:ADS) investors are due to receive a payment of US$0.21 per share on 18th of March. The dividend yield will be 28% based on this payment which is still above the industry average.

See our latest analysis for Alliance Data Systems

Alliance Data Systems Is Paying Out More Than It Is Earning

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. However, prior to this announcement, Alliance Data Systems' dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.

Over the next year, EPS is forecast to fall by 30.1%. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 164%, which is definitely a bit high to be sustainable going forward.

Alliance Data Systems' Dividend Has Lacked Consistency

It's comforting to see that Alliance Data Systems has been paying a dividend for a number of years now, however it has been cut at least once in that time. This suggests that the dividend might not be the most reliable. Since 2017, the first annual payment was US$2.08, compared to the most recent full-year payment of US$0.84. This works out to a decline of approximately 60% over that time. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend Looks Likely To Grow

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Alliance Data Systems has impressed us by growing EPS at 17% per 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 think that this is a great income investment, and we think that maintaining the dividend this year may have been a conservative choice. 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.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Alliance Data Systems has 3 warning signs (and 2 which are potentially serious) we think you should know about. Looking for more high-yielding dividend ideas? Try our curated list 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.