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Highlights
- Adairs (ADH) stock will trade ex-dividend in four days.
- The upcoming dividend payout is AU$0.065 per share, contributing to a 6.1% trailing yield.
- Earnings have remained flat over the past five years, influencing long-term dividend growth potential.
Investors keeping an eye on dividend stocks may find Adairs (ASX:ADH) on their radar as it approaches its ex-dividend date. In just four days, on March 10, the stock will trade ex-dividend, meaning those purchasing shares on or after this date will not be eligible for the upcoming dividend payout scheduled for April 3. Understanding the ex-dividend process is crucial, as stock trades typically take two business days or more to settle.
The next dividend payment from Adairs will be AU$0.065 per share, following a total dividend payout of AU$0.14 per share over the past year. At the current stock price of AU$2.28, this translates to a trailing yield of 6.1%. For long-term investors, dividends play a vital role in overall returns, but the sustainability of payouts remains a key consideration.
Assessing Dividend Sustainability
One of the most important factors to evaluate is whether a company's dividends are sustainable over the long term. A high payout ratio can sometimes indicate financial strain if earnings decline. Adairs has a payout ratio of approximately 72% of its profit, a level that falls within a reasonable range. However, profit alone doesn’t always reflect a company’s ability to maintain dividends—cash flow is equally, if not more, important.
Encouragingly, Adairs distributed just 27% of its free cash flow as dividends, which suggests a healthy cushion. Since both profits and cash flow comfortably cover dividend payments, there is some level of stability in the payout, provided earnings do not experience a significant downturn.
Earnings and Dividend Growth Trends
While some companies maintain steady dividends even with flat earnings, long-term investors generally look for businesses that exhibit meaningful earnings growth. Over the past five years, Adairs’ earnings per share have remained largely unchanged. Though this is preferable to a decline, steady or increasing earnings provide a stronger foundation for sustainable dividends.
Dividend growth has also been modest, with Adairs increasing its dividend at an average annual rate of 3.8% over the past nine years. Although this indicates consistency, stronger earnings growth would provide additional confidence in the company’s ability to continue increasing payouts.
With stable but flat earnings, Adairs appears to maintain a sustainable dividend at present levels. The payout ratios are within reasonable limits, supported by healthy cash flow. However, without significant earnings growth, there may be limitations on the company’s ability to meaningfully increase dividends in the future. Investors tracking dividend opportunities may find this information useful as the ex-dividend date approaches.
