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Diversified United Investment Limited's (ASX:DUI) investors are due to receive a payment of A$0.09 per share on 17th of September. This payment means the dividend yield will be 3.1%, which is below the average for the industry.
Check out our latest analysis for Diversified United Investment
Diversified United Investment Is Paying Out More Than It Is Earning
Even a low dividend yield can be attractive if it is sustained for years on end. However, prior to this announcement, Diversified United Investment was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. However, with more than 75% of free cash flow being paid out to shareholders, future growth could potentially be constrained.
EPS is set to fall by 1.6% over the next 12 months if recent trends continue. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 98%, which is definitely a bit high to be sustainable going forward.
Diversified United Investment Has A Solid Track Record
The company has an extended history of paying stable dividends. Since 2014, the annual payment back then was A$0.14, compared to the most recent full-year payment of A$0.16. This means that it has been growing its distributions at 1.3% per annum over that time. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.
The Dividend's Growth Prospects Are Limited
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Let's not jump to conclusions as things might not be as good as they appear on the surface. Unfortunately, Diversified United Investment's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year.
In Summary
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Diversified United Investment's payments, as there could be some issues with sustaining them into the future. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. This company is not in the top tier of income providing stocks.
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. For example, we've picked out 1 warning sign for Diversified United Investment that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield 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.