In This Article:
It looks like Aristocrat Leisure Limited (ASX:ALL) is about to go ex-dividend in the next 4 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Meaning, you will need to purchase Aristocrat Leisure's shares before the 30th of November to receive the dividend, which will be paid on the 19th of December.
The company's next dividend payment will be AU$0.34 per share. Last year, in total, the company distributed AU$0.68 to shareholders. Looking at the last 12 months of distributions, Aristocrat Leisure has a trailing yield of approximately 1.7% on its current stock price of A$40.08. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Aristocrat Leisure can afford its dividend, and if the dividend could grow.
Check out our latest analysis for Aristocrat Leisure
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Fortunately Aristocrat Leisure's payout ratio is modest, at just 29% of profit. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It distributed 27% of its free cash flow as dividends, a comfortable payout level for most companies.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Aristocrat Leisure's earnings have been skyrocketing, up 21% per annum for the past five years. Aristocrat Leisure is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.