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The board of AJ Bell plc (LON:AJB) has announced that the dividend on 4th of February will be increased to UK£0.095, which will be 104% higher than last year. Based on the announced payment, the dividend yield for the company will be 3.2%, which is fairly typical for the industry.
Check out our latest analysis for AJ Bell
AJ Bell Doesn't Earn Enough To Cover Its Payments
We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Based on the last payment, AJ Bell was quite comfortably earning enough to cover the dividend. This means that a large portion of its earnings are being retained to grow the business.
Looking forward, earnings per share is forecast to fall by 0.2% over the next year. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 131%, which is definitely a bit high to be sustainable going forward.
AJ Bell Is Still Building Its Track Record
The company has maintained a consistent dividend for a few years now, but we would like to see a longer track record before relying on it. The dividend has gone from UK£0.03 in 2018 to the most recent annual payment of UK£0.07. This works out to be a compound annual growth rate (CAGR) of approximately 32% a year over that time. AJ Bell has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.
The Dividend Looks Likely To Grow
Investors could be attracted to the stock based on the quality of its payment history. AJ Bell has seen EPS rising for the last five years, at 26% per annum. The company's earnings per share has grown rapidly in recent years, and it has a good balance between reinvesting and paying dividends to shareholders, so we think that AJ Bell could prove to be a strong dividend payer.
AJ Bell Looks Like A Great Dividend Stock
Overall, a dividend increase is always good, and we think that AJ Bell is a strong income stock thanks to its track record and growing earnings. The company is generating plenty of cash, and the earnings also quite easily cover the distributions. If earnings do fall over the next 12 months, the dividend could be buffeted a little bit, but we don't think it should cause too much of a problem in the long term. All of these factors considered, we think this has solid potential as a dividend stock.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for AJ Bell that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our curated list 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.