Sims Limited’s (ASX:SGM) dividend is being reduced from last year’s payment covering the same period to A$0.14 on the 22nd of March. This means that the annual payment will be 6.3% of the current stock price, which is in line with the average for the industry.
Check out our latest analysis for Sims
Sims’ Dividend Is Well Covered By Earnings
While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. However, Sims’ earnings easily cover the dividend. This means that most of its earnings are being retained to grow the business.
Looking forward, earnings per share is forecast to fall by 47.1% over the next year. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 57%, which is comfortable for the company to continue in the future.
The company has a long dividend track record, but it doesn’t look great with cuts in the past. Since 2013, the dividend has gone from A$0.45 total annually to A$1.00. This works out to be a compound annual growth rate (CAGR) of approximately 8.3% a year over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.
The Dividend Looks Likely To Grow
With a relatively unstable dividend, it’s even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. We are encouraged to see that Sims has grown earnings per share at 17% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Sims’ prospects of growing its dividend payments in the future.
We Really Like Sims’ Dividend
In general, we don’t like to see the dividend being cut, especially when the company has such high potential like Sims does. By reducing the dividend, pressure will be taken off the balance sheet, which could help the dividend to be consistent in the future. Taking this all into consideration, this looks like it could be a good dividend opportunity.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we’ve identified 2 warning signs for Sims that investors need to be conscious of moving forward. Is Sims 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.
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