The board of JSE Limited (JSE:JSE) has announced that the dividend on 28th of March will be increased to R8.54, which will be 18% higher than last year. This will take the dividend yield from 6.1% to 7.2%, providing a nice boost to shareholder returns.
Check out our latest analysis for JSE
JSE Doesn't Earn Enough To Cover Its Payments
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, JSE's dividend made up quite a large proportion of earnings but only 73% 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.
If the company can't turn things around, EPS could fall by 8.1% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 134%, which could put the dividend in jeopardy if the company's earnings don't improve.
Dividend Volatility
The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2012, the first annual payment was R2.10, compared to the most recent full-year payment of R7.25. This means that it has been growing its distributions at 13% per annum over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.
Dividend Growth May Be Hard To Come By
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. In the last five years, JSE's earnings per share has shrunk at approximately 8.1% per annum. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.
Our Thoughts On JSE's Dividend
Overall, we always like to see the dividend being raised, but we don't think JSE will make a great income stock. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 3 warning signs for JSE (of which 1 is a bit concerning!) you should know about. 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 JSE:JSE
Flawless balance sheet with proven track record and pays a dividend.
