APA Group's (ASX:APA) Dividend Will Be AU$0.27

APA Group (ASX:APA) will pay a dividend of AU$0.27 on the 15th of September. This makes the dividend yield 5.5%, which will augment investor returns quite nicely.

See our latest analysis for APA Group

APA Group Is Paying Out More Than It Is Earning

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, the company was paying out 462% of what it was earning and 95% of cash flows. This indicates that the company could be more focused on returning cash to shareholders than reinvesting to grow the business.

Earnings per share is forecast to rise by 114.6% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could get very high, which probably can't continue without starting to put some pressure on the balance sheet.

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APA Group Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2011, the first annual payment was AU$0.33, compared to the most recent full-year payment of AU$0.51. This means that it has been growing its distributions at 4.5% per annum over that time. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.

Dividend Growth Is Doubtful

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, initial appearances might be deceiving. In the last five years, APA Group's earnings per share has shrunk at approximately 8.5% per annum. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

The Dividend Could Prove To Be Unreliable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. Although they have been consistent in the past, we think the payments are a little high to be sustained. We don't think APA Group is a great stock to add to your portfolio if income is your focus.

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. Just as an example, we've come across 5 warning signs for APA Group you should be aware of, and 2 of them are concerning. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

This article by Simply Wall St is general in nature. 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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