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Spheria Emerging Companies Limited's (ASX:SEC) periodic dividend will be increasing on the 12th of November to A$0.035, with investors receiving 30% more than last year's A$0.027. This will take the dividend yield to an attractive 5.0%, providing a nice boost to shareholder returns.
View our latest analysis for Spheria Emerging Companies
Spheria Emerging Companies' Projected Earnings Seem Likely To Cover Future Distributions
We like to see robust dividend yields, but that doesn't matter if the payment isn't 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. If recent patterns in the dividend continue, the payout ratio in 12 months could be 94% which is a bit high but can definitely be sustainable.
Spheria Emerging Companies' Dividend Has Lacked Consistency
Spheria Emerging Companies has been paying dividends for a while, but the track record isn't stellar. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2018, the dividend has gone from A$0.04 total annually to A$0.12. This implies that the company grew its distributions at a yearly rate of about 20% over that duration. Spheria Emerging Companies has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.
Spheria Emerging Companies Might Find It Hard To Grow Its Dividend
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. It's encouraging to see that Spheria Emerging Companies has been growing its earnings per share at 21% a year over the past five years. However, Spheria Emerging Companies isn't reinvesting a lot back into the business, so we wonder how quickly it will be able to grow in the future.
Our Thoughts On Spheria Emerging Companies' Dividend
In summary, while it's always good to see the dividend being raised, we don't think Spheria Emerging Companies' payments are rock solid. Strong earnings growth means Spheria Emerging Companies has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. We would be a touch cautious of relying on this stock primarily for the dividend income.