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Silk Logistics Holdings Limited's (ASX:SLH) dividend is being reduced by 54% to A$0.0142 per share on 8th of October, in comparison to last year's comparable payment of A$0.031. This means the annual payment is 3.9% of the current stock price, which is above the average for the industry.
View our latest analysis for Silk Logistics Holdings
Silk Logistics Holdings' Payment Has Solid Earnings Coverage
If the payments aren't sustainable, a high yield for a few years won't matter that much. However, Silk Logistics Holdings' earnings easily cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.
Looking forward, earnings per share is forecast to rise by 88.5% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 11%, which is in the range that makes us comfortable with the sustainability of the dividend.
Silk Logistics Holdings' Dividend Has Lacked Consistency
Looking back, the dividend has been unstable but with a relatively short history, we think it may be a bit early to draw conclusions about long term dividend sustainability. Since 2021, the annual payment back then was A$0.0438, compared to the most recent full-year payment of A$0.0564. This implies that the company grew its distributions at a yearly rate of about 8.8% over that duration. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Silk Logistics Holdings might have put its house in order since then, but we remain cautious.
The Dividend Looks Likely To Grow
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Silk Logistics Holdings has impressed us by growing EPS at 26% per year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.
Silk Logistics Holdings Looks Like A Great Dividend Stock
It is generally not great to see the dividend being cut, but we don't think this should happen much if at all in the future given that Silk Logistics Holdings has the makings of a solid income stock moving forward. The cut will allow the company to continue paying out the dividend without putting the balance sheet under pressure, which means that it could remain sustainable for longer. All in all, this checks a lot of the boxes we look for when choosing an income stock.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 4 warning signs for Silk Logistics Holdings that investors need to be conscious of moving forward. Is Silk Logistics Holdings 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.