AUB Group Limited (ASX:AUB) will increase its dividend from last year's comparable payment on the 9th of October to A$0.47. Although the dividend is now higher, the yield is only 2.1%, which is below the industry average.

Check out our latest analysis for AUB Group

AUB Group's Dividend Is Well Covered By Earnings

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Before making this announcement, AUB Group's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

Looking forward, earnings per share is forecast to rise by 145.3% over the next year. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 46% which brings it into quite a comfortable range. historic-dividend

AUB Group Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The dividend has gone from an annual total of A$0.31 in 2013 to the most recent total annual payment of A$0.64. This implies that the company grew its distributions at a yearly rate of about 7.5% over that duration. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.

Dividend Growth May Be Hard To Achieve

The company's investors will be pleased to have been receiving dividend income for some time. However, things aren't all that rosy. It's not great to see that AUB Group's earnings per share has fallen at approximately 3.7% per year over the past five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.



We should note that AUB Group has issued stock equal to 17% of shares outstanding. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think AUB Group's payments are rock solid. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 3 warning signs for AUB Group that investors should take into consideration. Is AUB Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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