The board of Auswide Bank Ltd (ASX:ABA) has announced that it will pay a dividend of A$0.21 per share on the 30th of September. Based on this payment, the dividend yield will be 6.5%, which is fairly typical for the industry.
Auswide Bank's Dividend Forecasted To Be Well Covered By Earnings
We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue.
Having distributed dividends for at least 10 years, Auswide Bank has a long history of paying out a part of its earnings to shareholders. While past data isn't a guarantee for the future, Auswide Bank's latest earnings report puts its payout ratio at 3.3%, showing that the company can pay out its dividends comfortably.
Looking forward, earnings per share could rise by 9.7% over the next year if the trend from the last few years continues. Assuming the dividend continues along recent trends, we think the future payout ratio could be 64% by next year, which is in a pretty sustainable range.
Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was A$0.45 in 2012, and the most recent fiscal year payment was A$0.42. Dividend payments have shrunk at a rate of less than 1% per annum over this time frame. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.
Auswide Bank Could Grow Its Dividend
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that Auswide Bank has grown earnings per share at 9.7% per year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.
We Really Like Auswide Bank's Dividend
In summary, it is good to see that the dividend is staying consistent, and we don't think there is any reason to suspect this might change over the medium term. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All in all, this checks a lot of the boxes we look for when choosing an income stock.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 2 warning signs for Auswide Bank you should be aware of, and 1 of them is potentially serious. 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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