Steadfast Group (ASX:SDF) Is Increasing Its Dividend To AU$0.052
The board of Steadfast Group Limited (ASX:SDF) has announced that the dividend on 23rd of March will be increased to AU$0.052, which will be 18% higher than last year. Although the dividend is now higher, the yield is only 2.6%, which is below the industry average.
See our latest analysis for Steadfast Group
Steadfast Group's Earnings Easily Cover the Distributions
The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Prior to this announcement, Steadfast Group's dividend was comfortably covered by both cash flow and earnings. This means that a large portion of its earnings are being retained to grow the business.
EPS is set to fall by 4.0% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could reach 80%, which is definitely on the higher side.
Steadfast Group's Dividend Has Lacked Consistency
Looking back, Steadfast Group's dividend hasn't been particularly consistent. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. Since 2014, the first annual payment was AU$0.036, compared to the most recent full-year payment of AU$0.11. This means that it has been growing its distributions at 15% per annum over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.
The Dividend Looks Likely To Grow
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. It's encouraging to see Steadfast Group has been growing its earnings per share at 13% a year over the past five years. Earnings are on the uptrend, and it is only paying a small portion of those earnings to shareholders.
The company has also been raising capital by issuing stock equal to 13% of shares outstanding in the last 12 months. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.
We Really Like Steadfast Group'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 generating plenty of cash, and the earnings also quite easily cover the distributions. We should point out that the earnings are expected to fall over the next 12 months, which won't be a problem if this doesn't become a trend, but could cause some turbulence in the next year. All in all, this checks a lot of the boxes we look for when choosing an income stock.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 1 warning sign for Steadfast Group that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.
