Computershare Limited's (ASX:CPU) investors are due to receive a payment of $0.40 per share on 20th of March. Even though the dividend went up, the yield is still quite low at only 3.0%.

Check out our latest analysis for Computershare

Computershare's Payment Has Solid Earnings Coverage

If it is predictable over a long period, even low dividend yields can be attractive. The last dividend was quite easily covered by Computershare's earnings. This indicates that quite a large proportion of earnings is being invested back into the business.

Over the next year, EPS is forecast to expand by 47.6%. If the dividend continues along recent trends, we estimate the payout ratio will be 73%, which is in the range that makes us comfortable with the sustainability of the dividend. historic-dividend

Computershare Has A Solid Track Record

The company has an extended history of paying stable dividends. The dividend has gone from an annual total of $0.249 in 2014 to the most recent total annual payment of $0.516. This means that it has been growing its distributions at 7.5% per annum over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

The Dividend's Growth Prospects Are Limited

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Although it's important to note that Computershare's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. The company has been growing at a pretty soft 1.9% per annum, and is paying out quite a lot of its earnings to shareholders. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.

We Really Like Computershare's Dividend

Overall, a dividend increase is always good, and we think that Computershare is a strong income stock thanks to its track record and growing earnings. Earnings are easily covering distributions, and the company is generating plenty of cash. All of these factors considered, we think this has solid potential as a dividend stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 1 warning sign for Computershare that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

Have feedback on this article? Concerned about the content?Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.