Here's Why We're Wary Of Buying ASX's (ASX:ASX) For Its Upcoming Dividend
Readers hoping to buy ASX Limited (ASX:ASX) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. This means that investors who purchase shares on or after the 4th of March will not receive the dividend, which will be paid on the 24th of March.
ASX's next dividend payment will be AU$1.12 per share, and in the last 12 months, the company paid a total of AU$2.35 per share. Looking at the last 12 months of distributions, ASX has a trailing yield of approximately 3.4% on its current stock price of A$68.5. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.
See our latest analysis for ASX
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Last year ASX paid out 93% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings.
When a company pays out a dividend that is not well covered by profits, the dividend is generally seen as more vulnerable to being cut.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at ASX, with earnings per share up 4.2% on average over the last five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, ASX has lifted its dividend by approximately 3.1% 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.
The Bottom Line
Should investors buy ASX for the upcoming dividend? ASX has been growing earnings per share at a reasonable rate, but over the last year its dividend was not well covered by earnings. All things considered, we're not optimistic about its dividend prospects, and would be inclined to leave it on the shelf for now.
Although, if you're still interested in ASX and want to know more, you'll find it very useful to know what risks this stock faces. For example, we've found 1 warning sign for ASX that we recommend you consider before investing in the business.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising 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.
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