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Highlights:
- Supply Network Limited will distribute a dividend on April 4th
- The company's past dividend payments have shown volatility
- Projected earnings growth may affect future dividend sustainability
Supply Network Limited (ASX:SNL) is set to distribute a dividend of A$0.32 on April 4th. This translates to an annual yield of 1.6% of the current stock price—slightly below the industry standard. Recent observations highlight certain points about the sustainability of its dividends.
Dividend Coverage and Sustainability
Although the dividend yield seems modest, the sustainability is an aspect to consider. Before this announcement, Supply Network allocated a considerable part of its earnings and cash flow for dividends, aggregating to 199% of cash flows. This high payout ratio indicates a vulnerability to cutbacks if cash flow decreases. However, with EPS expected to rise by 60.1% over the next year, the payout ratio is projected to align at a more sustainable 64%.
Dividend Volatility and Growth History
While Supply Network Limited has a long history of dividend payments, the dividend has been reduced at least once over the past decade. Since 2015, the dividend has increased from A$0.09 to A$0.56 annually, equating to a growth rate of approximately 20% per year. Despite the robust rise over time, the possibility for future cuts remains, cautioning against relying solely on the dividend for income.
Dividend Growth
With an unpredictable dividend, the importance of evaluating EPS growth becomes paramount, as it could lead to dividend increases in the future. Supply Network has demonstrated commendable EPS growth at an annual rate of 29% over the past five years. If this trend continues, there is a likelihood of sustaining the dividend, although reinvestment for growth could also be favorable for a rapidly growing company.
Supply Network Limited may not represent an ideal income stock. It meets earnings coverage, yet lacks robust cash flows. Investors generally seek companies with consistent, steady dividend policies. It's essential to consider multiple factors before committing to stocks. For instance, a warning sign for Supply Network has been identified that prospective stakeholders should be aware of.
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