04-03-2025
AECI (JSE:AFE) Is Paying Out A Larger Dividend Than Last Year
AECI Ltd's (JSE:AFE) dividend will be increasing from last year's payment of the same period to ZAR2.19 on 14th of April. Based on this payment, the dividend yield for the company will be 2.3%, which is fairly typical for the industry.
See our latest analysis for AECI
We aren't too impressed by dividend yields unless they can be sustained over time. Before this announcement, AECI was paying out 83% of earnings, but a comparatively small 25% of free cash flows. This leaves plenty of cash for reinvestment into the business.
Analysts expect a massive rise in earnings per share in the next year. Assuming the dividend continues along recent trends, we estimate that the payout ratio could reach 20%, which is in a comfortable range for us.
The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was ZAR3.25 in 2015, and the most recent fiscal year payment was ZAR2.19. This works out to be a decline of approximately 3.9% per year over that time. A company that decreases its dividend over time generally isn't what we are looking for.
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. AECI's EPS has fallen by approximately 26% per year during the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.
In summary, while it's always good to see the dividend being raised, we don't think AECI's payments are rock solid. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would probably look elsewhere for an income investment.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 1 warning sign for AECI that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) 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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