Regular readers will know that we love our dividends at Simply Wall St, which is why it’s exciting to see Australian Finance Group Limited (ASX:AFG) is about to trade ex-dividend in the next four days. You will need to purchase shares before the 9th of September to receive the dividend, which will be paid on the 29th of September.
Australian Finance Group’s next dividend payment will be AU$0.047 per share, and in the last 12 months, the company paid a total of AU$0.10 per share. Based on the last year’s worth of payments, Australian Finance Group has a trailing yield of 5.8% on the current stock price of A$1.75. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Australian Finance Group can afford its dividend, and if the dividend could grow.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. Australian Finance Group paid out 58% of its earnings to investors last year, a normal payout level for most businesses.
Generally speaking, the lower a company’s payout ratios, the more resilient its dividend usually is.
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. For this reason, we’re glad to see Australian Finance Group’s earnings per share have risen 17% per annum over the last five years.
We’d also point out that Australian Finance Group issued a meaningful number of new shares in the past year. It’s hard to grow dividends per share when a company keeps creating new shares.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. Australian Finance Group has delivered an average of 19% per year annual increase in its dividend, based on the past five years of dividend payments. It’s great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
The Bottom Line
Has Australian Finance Group got what it takes to maintain its dividend payments? Earnings per share are growing nicely, and Australian Finance Group is paying out a percentage of its earnings that is around the average for dividend-paying stocks. Overall, Australian Finance Group looks like a promising dividend stock in this analysis, and we think it would be worth investigating further.
While it’s tempting to invest in Australian Finance Group for the dividends alone, you should always be mindful of the risks involved. In terms of investment risks, we’ve identified 2 warning signs with Australian Finance Group and understanding them should be part of your investment process.
We wouldn’t recommend just buying the first dividend stock you see, though. Here’s a list of interesting 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.