The board of Seven Group Holdings Limited (ASX:SVW) has announced that it will pay a dividend of A$0.23 per share on the 28th of October. The dividend yield will be 2.4% based on this payment which is still above the industry average.
Seven Group Holdings' Payment Has Solid Earnings Coverage
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Seven Group Holdings' earnings easily covered the dividend, but free cash flows were negative. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.
Looking forward, earnings per share is forecast to rise by 105.9% over the next year. If the dividend continues on this path, the payout ratio could be 21% by next year, which we think can be pretty sustainable going forward.
Seven Group Holdings Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2012, the annual payment back then was A$0.36, compared to the most recent full-year payment of A$0.46. This implies that the company grew its distributions at a yearly rate of about 2.5% over that duration. Slow and steady dividend growth might not sound that exciting, but dividends have been stable for ten years, which we think makes this a fairly attractive offer.
The Dividend Looks Likely To Grow
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. We are encouraged to see that Seven Group Holdings has grown earnings per share at 33% per year over the past five years. 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.
Our Thoughts On Seven Group Holdings' Dividend
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Seven Group Holdings' payments, as there could be some issues with sustaining them into the future. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. This company is not in the top tier of income providing stocks.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 3 warning signs for Seven Group Holdings you should be aware of, and 1 of them is a bit concerning. Is Seven Group Holdings not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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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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