Diversified United Investment Limited (ASX:DUI) has announced that it will be increasing its periodic dividend on the 9th of September to A$0.09, which will be 5.9% higher than last year's comparable payment amount of A$0.085. This takes the annual payment to 3.3% of the current stock price, which is about average for the industry.
Check out our latest analysis for Diversified United Investment
Diversified United Investment's Dividend Is Well Covered By Earnings
We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Before this announcement, Diversified United Investment was paying out 74% of earnings, but a comparatively small 63% of free cash flows. 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.
If the trend of the last few years continues, EPS will grow by 6.4% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 72% by next year, which is in a pretty sustainable range.
Diversified United Investment Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. The annual payment during the last 10 years was A$0.13 in 2012, and the most recent fiscal year payment was A$0.16. This means that it has been growing its distributions at 2.1% 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 Has Growth Potential
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Diversified United Investment has impressed us by growing EPS at 6.4% per year over the past five years. Recently, the company has been able to grow earnings at a decent rate, but with the payout ratio on the higher end we don't think the dividend has many prospects for growth.
We Really Like Diversified United Investment's Dividend
In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Earnings are easily covering distributions, and the company is generating plenty of cash. All in all, this checks a lot of the boxes we look for when choosing an income stock.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Now, if you want to look closer, it would be worth checking out our free research on Diversified United Investment management tenure, salary, and performance. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.