Should You Buy Austal Limited (ASX:ASB) For Its 2.3% Dividend?
Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. Historically, Austal Limited (ASX:ASB) has paid dividends to shareholders, and these days it yields 2.3%. Does Austal tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
See our latest analysis for Austal
How I analyze a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
Is their annual yield among the top 25% of dividend payers?
Has it paid dividend every year without dramatically reducing payout in the past?
Has it increased its dividend per share amount over the past?
Is is able to pay the current rate of dividends from its earnings?
Will the company be able to keep paying dividend based on the future earnings growth?
How does Austal fare?
The current trailing twelve-month payout ratio for the stock is 43.7%, meaning the dividend is sufficiently covered by earnings. However, going forward, analysts expect ASB’s payout to fall to 32.3% of its earnings, which leads to a dividend yield of 2.4%. However, EPS should increase to A$0.13, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. Not only have dividend payouts from Austal fallen over the past 10 years, it has also been highly volatile during this time, with drops of over 25% in some years. These characteristics do not bode well for income investors seeking reliable stream of dividends.
Compared to its peers, Austal has a yield of 2.3%, which is high for Aerospace & Defense stocks but still below the low risk savings rate.
Next Steps:
After digging a little deeper into Austal’s yield, it’s easy to see why you should be cautious investing in the company just for the dividend. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. Below, I’ve compiled three pertinent aspects you should look at:
Future Outlook: What are well-informed industry analysts predicting for ASB’s future growth? Take a look at our free research report of analyst consensus for ASB’s outlook.
Valuation: What is ASB worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether ASB is currently mispriced by the market.
Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
