Spheria Emerging Companies (ASX:SEC) Will Pay A Dividend Of A$0.035

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editorial-team@simplywallst.com (Simply Wall St)

Sat, Jan 18, 2025, 3:03 PM 3 min read

Spheria Emerging Companies' Future Dividends May Potentially Be At Risk

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. The last dividend made up a very large portion of earnings and also represented 88% of free cash flows. This is usually an indication that the focus of the company is returning cash to shareholders rather than reinvesting it for growth.

EPS is set to grow by 21.2% over the next year if recent trends continue. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 98% over the next year.

historic-dividend — ASX:SEC Historic Dividend January 18th 2025

Spheria Emerging Companies' Dividend Has Lacked Consistency

Looking back, Spheria Emerging Companies' dividend hasn't been particularly consistent. This makes us cautious about the consistency of the dividend over a full economic cycle. The dividend has gone from an annual total of A$0.04 in 2019 to the most recent total annual payment of A$0.12. This implies that the company grew its distributions at a yearly rate of about 20% over that duration. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

Spheria Emerging Companies Might Find It Hard To Grow Its Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Spheria Emerging Companies has impressed us by growing EPS at 21% per year over the past five years. Fast growing earnings are great, but this can rarely be sustained without some reinvestment into the business, which Spheria Emerging Companies hasn't been doing.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Spheria Emerging Companies' payments, as there could be some issues with sustaining them into the future. While we generally think the level of distributions are a bit high, we wouldn't rule it out as becoming a good dividend payer in the future as its earnings are growing healthily. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 3 warning signs for Spheria Emerging Companies (1 is a bit concerning!) that you should be aware of before investing. Is Spheria Emerging Companies 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.