Austal (ASX:ASB) Will Pay A Dividend Of A$0.04
Austal Limited's (ASX:ASB) investors are due to receive a payment of A$0.04 per share on 20th of April. The dividend yield will be 4.4% based on this payment which is still above the industry average.
View our latest analysis for Austal
Austal's Earnings Easily Cover The Distributions
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, Austal was earning enough to cover the dividend, but free cash flows weren't positive. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.
EPS is set to fall by 22.8% over the next 12 months. Assuming the dividend continues along recent trends, we believe the payout ratio could be 54%, which we are pretty comfortable with and we think is feasible on an earnings basis.
Austal's Dividend Has Lacked Consistency
Austal has been paying dividends for a while, but the track record isn't stellar. This suggests that the dividend might not be the most reliable. The annual payment during the last 8 years was A$0.02 in 2015, and the most recent fiscal year payment was A$0.08. This works out to be a compound annual growth rate (CAGR) of approximately 19% a year over that time. Austal has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.
The Dividend Looks Likely To Grow
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. We are encouraged to see that Austal has grown earnings per share at 38% per year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.
Our Thoughts On Austal's Dividend
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Austal's payments, as there could be some issues with sustaining them into the future. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We don't think Austal is a great stock to add to your portfolio if income is your focus.
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. Just as an example, we've come across 3 warning signs for Austal you should be aware of, and 2 of them are concerning. 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.
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