MyState Limited's (ASX:MYS) dividend is being reduced from last year's payment covering the same period to A$0.115 on the 7th of September. This means that the annual payment will be 5.0% of the current stock price, which is in line with the average for the industry.
Check out our latest analysis for MyState
MyState's Payment Expected To Have Solid Earnings Coverage
We aren't too impressed by dividend yields unless they can be sustained over time.
MyState has a long history of paying out dividends, with its current track record at a minimum of 10 years. Based on MyState's last earnings report, the payout ratio is at a decent 79%, meaning that the company is able to pay out its dividend with a bit of room to spare.
Over the next 3 years, EPS is forecast to expand by 43.6%. Likewise, analysts forecast that the future payout ratio could reach 87% over that same time period. This is definitely on the higher side, but we wouldn't necessarily say this is unsustainable.
Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2012, the dividend has gone from A$0.27 total annually to A$0.24. This works out to be a decline of approximately 1.2% per year over that time. A company that decreases its dividend over time generally isn't what we are looking for.
The Dividend's Growth Prospects Are Limited
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. In the last five years, MyState's earnings per share has shrunk at approximately 2.3% per annum. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.
MyState's Dividend Doesn't Look Sustainable
In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The payments are bit high to be considered sustainable, and the track record isn't the best. We would be a touch cautious of relying on this stock primarily for the dividend income.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 2 warning signs for MyState (1 doesn't sit too well with us!) that you should be aware of before investing. Is MyState not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
Join A Paid User Research Session
You'll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here