Bendigo and Adelaide Bank Limited (ASX:BEN) has announced that it will pay a dividend of A$0.265 per share on the 29th of September. Based on this payment, the dividend yield will be 5.9%, which is fairly typical for the industry.
Bendigo and Adelaide Bank's Payment Expected To Have Solid Earnings Coverage
We like a dividend to be consistent over the long term, so checking whether it is sustainable is important.
Bendigo and Adelaide Bank has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. Taking data from its last earnings report, calculating for the company's payout ratio shows 48%, which means that Bendigo and Adelaide Bank would be able to pay its last dividend without pressure on the balance sheet.
Over the next 3 years, EPS is forecast to fall by 28.3%. Fortunately, analysts forecast the future payout ratio to be 68% over the same time horizon, which is in the range that makes us comfortable with the sustainability of the dividend.
The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was A$0.60 in 2012, and the most recent fiscal year payment was A$0.53. The dividend has shrunk at around 1.2% a year during that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.
Dividend Growth May Be Hard To Achieve
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings has been rising at 3.8% per annum over the last five years, which admittedly is a bit slow. Growth of 3.8% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. This could mean the dividend doesn't have the growth potential we look for going into the future.
Our Thoughts On Bendigo and Adelaide Bank's Dividend
Overall, a consistent dividend is a good thing, and we think that Bendigo and Adelaide Bank has the ability to continue this into the future. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Bendigo and Adelaide Bank has 4 warning signs (and 2 which are potentially serious) we think you should know about. 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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