Aspen Pharmacare Holdings (JSE:APN) Has Announced That It Will Be Increasing Its Dividend To ZAR3.59

Aspen Pharmacare Holdings Limited (JSE:APN) has announced that it will be increasing its dividend from last year's comparable payment on the 23rd of September to ZAR3.59. Although the dividend is now higher, the yield is only 1.9%, which is below the industry average.

Check out our latest analysis for Aspen Pharmacare Holdings

Aspen Pharmacare Holdings' Future Dividend Projections Appear Well Covered By Earnings

If it is predictable over a long period, even low dividend yields can be attractive. Based on the last payment, Aspen Pharmacare Holdings was paying only paying out a fraction of earnings, but the payment was a massive 98% of cash flows. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

The next year is set to see EPS grow by 99.2%. If the dividend continues along recent trends, we estimate the payout ratio will be 19%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the dividend has gone from ZAR1.57 total annually to ZAR3.59. This means that it has been growing its distributions at 8.6% per annum over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see that Aspen Pharmacare Holdings has been growing its earnings per share at 22% a year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

Our Thoughts On Aspen Pharmacare Holdings' Dividend

Overall, we always like to see the dividend being raised, but we don't think Aspen Pharmacare Holdings will make a great income stock. While Aspen Pharmacare Holdings is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 5 analysts we track are forecasting for Aspen Pharmacare Holdings for free with public analyst estimates for the company. 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.