Readers hoping to buy Australian Finance Group Limited (ASX:AFG) 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 2nd of March will not receive the dividend, which will be paid on the 26th of March.
Australian Finance Group's next dividend payment will be AU$0.054 per share, on the back of last year when the company paid a total of AU$0.11 to shareholders. Based on the last year's worth of payments, Australian Finance Group stock has a trailing yield of around 4.0% on the current share price of A$2.81. 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.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Australian Finance Group is paying out an acceptable 70% of its profit, a common payout level among most companies.
When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. 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 13% per annum over the last five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Australian Finance Group has delivered 22% dividend growth per year on average over the past five years. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
The Bottom Line
Should investors buy Australian Finance Group for the upcoming dividend? Australian Finance Group has an acceptable payout ratio and its earnings per share have been improving at a decent rate. Australian Finance Group ticks a lot of boxes for us from a dividend perspective, and we think these characteristics should mark the company as deserving of further attention.
Curious what other investors think of Australian Finance Group? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.
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.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned.
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