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Australian Clinical Labs Limited's (ASX:ACL) investors are due to receive a payment of A$0.035 per share on 16th of April. This will take the annual payment to 3.9% of the stock price, which is above what most companies in the industry pay.
View our latest analysis for Australian Clinical Labs
Australian Clinical Labs' Future Dividend Projections Appear Well Covered By Earnings
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. The last payment made up 81% of earnings, but cash flows were much higher. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.
Over the next year, EPS is forecast to expand by 58.9%. If the dividend continues along recent trends, we estimate the payout ratio will be 48%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.
Australian Clinical Labs' Dividend Has Lacked Consistency
Even in its short history, we have seen the dividend cut. The annual payment during the last 3 years was A$0.24 in 2022, and the most recent fiscal year payment was A$0.12. The dividend has fallen 50% over that period. A company that decreases its dividend over time generally isn't what we are looking for.
Dividend Growth Potential Is Shaky
With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. Australian Clinical Labs' earnings per share has shrunk at 11% a year over the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.
In Summary
Overall, we always like to see the dividend being raised, but we don't think Australian Clinical Labs will make a great income stock. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would probably look elsewhere for an income investment.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for Australian Clinical Labs that investors should take into consideration. Is Australian Clinical Labs not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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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.