Domain Holdings Australia Limited (ASX: DHG) investors are due to receive a payment of AU$0.04 per share on September 13. The dividend yield will be 2.1% based on this payout, which is still above the industry average.
Domain Holdings Australia revenue easily covers distributions
While it’s good to have a high dividend yield, we also have to ask ourselves if the payout is sustainable. Prior to making this announcement, the company’s dividend was well above its earnings. It will be difficult to maintain this level of payment, so we would not be confident that this situation will continue.
Looking ahead, earnings per share are expected to increase 192.8% over the next year. Assuming the dividend continues on the trajectory it has charted recently, our estimates show the payout ratio is 35%, which puts it in a fairly comfortable range.
Domain Holdings Australia’s dividend lacks consistency
Domain Holdings Australia has been paying dividends for some time, but the track record is not stellar. This suggests that the dividend may not be the most reliable. There has not been much change in the dividend over the past 5 years. Modest dividend growth is good to see, but we believe this is offset by historic payout reductions. It is difficult to live on dividend income if the company’s profits are not constant.
The dividend has limited growth potential
Since the dividend has been reduced in the past, we need to check if earnings are increasing and if this could lead to higher dividends in the future. Earnings per share have fallen 24% over the past five years. This sharp decline may indicate that the company is going through a difficult period, which could limit its ability to pay a larger dividend each year in the future. However, next year actually looks positive, with profits expected to increase. We’d just wait for it to become a pattern before we get too excited.
Domain Holdings Australia’s dividend doesn’t look great
Overall, it’s not a great candidate for an income investment, although the dividend has remained stable this year. The company seems to be stretching a bit to make such large payments, but it doesn’t seem like they can be consistent over time. All in all, it doesn’t excite us from a revenue standpoint.
Market movements testify to the valuation of a consistent dividend policy over a more unpredictable one. However, there are other things for investors to consider when analyzing stock performance. Pushing the debate a little further, we have identified 1 warning sign for Domain Holdings Australia that investors should be aware of going forward. Looking for more high yield dividend ideas? Try our collection of strong dividend payers.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.
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