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Globe International Limited (ASX:GLB) has announced that it will be increasing its dividend on the 16th of September to AU$0.20. This will take the annual payment to 4.9% of the stock price, which is above what most companies in the industry pay.
While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Globe International's stock price has increased by 36% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.
Globe International's Earnings Easily Cover the Distributions
If the payments aren't sustainable, a high yield for a few years won't matter that much. The last dividend was quite easily covered by Globe International's earnings. This indicates that quite a large proportion of earnings is being invested back into the business.
If the trend of the last few years continues, EPS will grow by 28.3% over the next 12 months. If the dividend continues on this path, the payout ratio could be 71% by next year, which we think can be pretty sustainable going forward.
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2011, the dividend has gone from AU$0.05 to AU$0.40. This works out to be a compound annual growth rate (CAGR) of approximately 23% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.
The Dividend Looks Likely To Grow
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Globe International has seen EPS rising for the last five years, at 28% per annum. The company doesn't have any problems growing, despite returning a lot of capital to shareholders, which is a very nice combination for a dividend stock to have.
We Really Like Globe International's Dividend
Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All of these factors considered, we think this has solid potential as a dividend stock.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 2 warning signs for Globe International that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.
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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