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AVJennings Limited (ASX:AVJ) Looks Interesting, And It's About To Pay A Dividend

Simply Wall St

It looks like AVJennings Limited (ASX:AVJ) is about to go ex-dividend in the next 4 days. You can purchase shares before the 5th of March in order to receive the dividend, which the company will pay on the 27th of March.

AVJennings's next dividend payment will be AU$0.012 per share, on the back of last year when the company paid a total of AU$0.027 to shareholders. Based on the last year's worth of payments, AVJennings stock has a trailing yield of around 5.0% on the current share price of A$0.535. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether AVJennings can afford its dividend, and if the dividend could grow.

Check out our latest analysis for AVJennings

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Fortunately AVJennings's payout ratio is modest, at just 46% of profit. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Fortunately, it paid out only 25% of its free cash flow in the past year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see how much of its profit AVJennings paid out over the last 12 months.

ASX:AVJ Historical Dividend Yield, February 29th 2020
ASX:AVJ Historical Dividend Yield, February 29th 2020

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at AVJennings, with earnings per share up 3.5% on average over the last five years. Recent earnings growth has been limited. Yet there are several ways to grow the dividend, and one of them is simply that the company may choose to pay out more of its earnings as dividends.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last ten years, AVJennings has lifted its dividend by approximately 6.1% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

Final Takeaway

Is AVJennings worth buying for its dividend? Earnings per share growth has been growing somewhat, and AVJennings is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. It might be nice to see earnings growing faster, but AVJennings is being conservative with its dividend payouts and could still perform reasonably over the long run. AVJennings looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

Keen to explore more data on AVJennings's financial performance? Check out our visualisation of its historical revenue and earnings growth.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.