JSE (JSE:JSE) Is Paying Out A Larger Dividend Than Last Year

The board of JSE Limited (JSE:JSE) has announced that it will be paying its dividend of ZAR7.84 on the 15th of April, an increased payment from last year's comparable dividend. This takes the dividend yield to 8.9%, which shareholders will be pleased with.

Check out our latest analysis for JSE

JSE's Earnings Easily Cover The Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before this announcement, JSE was paying out 77% of earnings, but a comparatively small 71% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

Earnings per share is forecast to rise by 14.0% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 77%, which is on the higher side, but certainly still feasible.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2014, the annual payment back then was ZAR3.50, compared to the most recent full-year payment of ZAR7.84. This implies that the company grew its distributions at a yearly rate of about 8.4% over that duration. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

The Dividend's Growth Prospects Are Limited

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. Unfortunately, JSE's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year.

Our Thoughts On JSE's Dividend

In summary, while it's always good to see the dividend being raised, we don't think JSE's payments are rock solid. 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. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for JSE that investors should take into consideration. Is JSE not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.