Associated British Foods plc (LON:ABF) has announced that it will pay a dividend of £0.207 per share on the 5th of July. Although the dividend is now higher, the yield is only 1.8%, which is below the industry average.

Check out our latest analysis for Associated British Foods

Associated British Foods' Earnings Easily Cover The Distributions

Even a low dividend yield can be attractive if it is sustained for years on end. However, prior to this announcement, Associated British Foods' dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.

The next year is set to see EPS grow by 31.4%. If the dividend continues on this path, the payout ratio could be 33% by next year, which we think can be pretty sustainable going forward. historic-dividend

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of £0.32 in 2014 to the most recent total annual payment of £0.473. This implies that the company grew its distributions at a yearly rate of about 4.0% over that duration. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

We Could See Associated British Foods' Dividend Growing

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that Associated British Foods has grown earnings per share at 6.4% per year over the past five years. Associated British Foods definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Our Thoughts On Associated British Foods' Dividend

Overall, this is a reasonable dividend, and it being raised is an added bonus. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. The payment isn't stellar, but it could make a decent addition to a dividend portfolio.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Earnings growth generally bodes well for the future value of company dividend payments. See if the 16 Associated British Foods analysts we track are forecasting continued growth with our freereport on analyst estimates for the company. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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