Aspen Pharmacare Holdings' (JSE:APN) Dividend Is Being Reduced To ZAR2.11

Aspen Pharmacare Holdings Limited (JSE:APN) has announced that on 6th of October, it will be paying a dividend ofZAR2.11, which a reduction from last year's comparable dividend. Despite the cut, the dividend yield of 2.0% will still be comparable to other companies in the industry.

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Estimates Indicate Aspen Pharmacare Holdings' Dividend Coverage Likely To Improve

Solid dividend yields are great, but they only really help us if the payment is sustainable. The company is paying out a large amount of its cash flows, even though it isn't generating any profit. This is quite a strong warning sign that the dividend may not be sustainable.

Looking forward, earnings per share is forecast to rise exponentially over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 35%, so there isn't too much pressure on the dividend.

Check out our latest analysis for Aspen Pharmacare Holdings

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2015, the annual payment back then was ZAR1.88, compared to the most recent full-year payment of ZAR2.11. This implies that the company grew its distributions at a yearly rate of about 1.2% over that duration. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

Dividend Growth Is Doubtful

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's not great to see that Aspen Pharmacare Holdings' earnings per share has fallen at approximately 7.2% per year over the past five years. 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. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.

We're Not Big Fans Of Aspen Pharmacare Holdings' Dividend

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The company isn't making enough to be paying as much as it is, and the other factors don't look particularly promising either. We don't think that this is a great candidate to be an income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Given that earnings are not growing, the dividend does not look nearly so attractive. See if the 6 analysts are forecasting a turnaround in our free collection of analyst estimates here. Is Aspen Pharmacare Holdings 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.