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Highlights
- Data#3 Limited (ASX:DTL) announces an increase in its upcoming dividend payout.
- Future dividends appear to be well covered by the company's earnings.
- Long-term stability of dividends remains a concern despite recent growth.
Data#3 Limited (ASX:DTL) is gearing up to distribute its periodic dividend, which will see a modest increase on March 31st. The upcoming payment of A$0.131 represents a 4.0% rise over last year's A$0.126. Over the course of a year, this translates to a 3.4% yield relative to the stock's current price, positioning it ahead of many industry counterparts.
Assessment of Dividend Sustainability
While attention-grabbing dividend yields can be appealing, their sustainability is crucial. Recently, Data#3 paid out 91% of its earnings as dividends. However, reassuringly, the company's cash flows significantly surpassed its earnings, suggesting that the dividends are on firm ground and well-sustained for the foreseeable future.
Looking ahead, Data#3's earnings per share (EPS) are predicted to surge by 41.7% over the next year. Assuming the company maintains its current trajectory, the payout ratio might comfortably settle at 74%, a move likely to bolster dividend longevity.
Dividend Volatility Concerns
Despite the appealing growth in payments, Data#3's history with dividend stability has been a bit rocky. From 2015, when the annual payout was A$0.045, it has climbed to A$0.262, indicating a robust growth rate of about 19% annually. However, past reductions signal that the company's payout policy might be overly ambitious at times.
Future Growth Potential
For Data#3, consistent growth in EPS, averaging 16% annually over the past five years, offers a beacon of hope. Nevertheless, the relatively high payout ratio limits extensive growth prospects for future dividends. Consequently, although the company has managed commendable earnings growth, its dividends haven't matched that pace.
While the incremental increase in Data#3's dividend payments is encouraging, it might not establish the company as an ideal option for income-focused investments. The lack of dividend stability over time and limited prospects for substantial future growth linger as primary concerns. However, given the solid cash flow coverage, shareholders might find the dividends reliable in the short term.
Investors are encouraged to explore other financial indicators beyond dividends when evaluating Data#3. Meanwhile, for those scouting high-yielding opportunities, a broader search could potentially uncover more stable and lucrative options.
