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Should Income Investors Look At Auswide Bank Ltd (ASX:ABA) Before Its Ex-Dividend?

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·3 min read
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It looks like Auswide Bank Ltd (ASX:ABA) is about to go ex-dividend in the next four days. Ex-dividend means that investors that purchase the stock on or after the 4th of March will not receive this dividend, which will be paid on the 19th of March.

Auswide Bank's next dividend payment will be AU$0.19 per share. Last year, in total, the company distributed AU$0.30 to shareholders. Looking at the last 12 months of distributions, Auswide Bank has a trailing yield of approximately 4.6% on its current stock price of A$6.46. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Auswide Bank has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Auswide Bank

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Auswide Bank is paying out an acceptable 61% of its profit, a common payout level among most companies.

Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.

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?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see Auswide Bank earnings per share are up 6.8% per annum over the last five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Auswide Bank has seen its dividend decline 7.2% per annum on average over the past 10 years, which is not great to see. Auswide Bank is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

To Sum It Up

Should investors buy Auswide Bank for the upcoming dividend? Earnings per share have been growing at a reasonable rate, and the company is paying out a bit over half its earnings as dividends. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're on the fence about its dividend prospects.

With that being said, if dividends aren't your biggest concern with Auswide Bank, you should know about the other risks facing this business. Case in point: We've spotted 1 warning sign for Auswide Bank you should be aware of.

If you're in the market for dividend stocks, we recommend checking our list of top 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.