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Don't Race Out To Buy Australia and New Zealand Banking Group Limited (ASX:ANZ) Just Because It's Going Ex-Dividend

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·3 min read
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Readers hoping to buy Australia and New Zealand Banking Group Limited (ASX:ANZ) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Ex-dividend means that investors that purchase the stock on or after the 10th of May will not receive this dividend, which will be paid on the 1st of July.

Australia and New Zealand Banking Group's next dividend payment will be AU$0.70 per share, which looks like a nice increase on last year, when the company distributed a total of AU$0.60 to shareholders. 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 check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Australia and New Zealand Banking Group

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Australia and New Zealand Banking Group is paying out an acceptable 60% of its profit, a common payout level among most companies.

When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
historic-dividend

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. Australia and New Zealand Banking Group's earnings per share have fallen at approximately 8.3% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Australia and New Zealand Banking Group's dividend payments per share have declined at 7.2% per year on average over the past 10 years, which is uninspiring. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

The Bottom Line

Should investors buy Australia and New Zealand Banking Group for the upcoming dividend? Earnings per share have been declining and the company is paying out more than half its profits to shareholders; not an enticing combination. These characteristics don't generally lead to outstanding dividend performance, and investors may not be happy with the results of owning this stock for its dividend.

With that in mind though, if the poor dividend characteristics of Australia and New Zealand Banking Group don't faze you, it's worth being mindful of the risks involved with this business. Case in point: We've spotted 2 warning signs for Australia and New Zealand Banking Group you should be aware of.

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.

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. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.