The board of AUB Group Limited (ASX:AUB) has announced that it will be paying its dividend of A$0.59 on the 27th of September, an increased payment from last year's comparable dividend. Even though the dividend went up, the yield is still quite low at only 2.5%.

View our latest analysis for AUB Group

AUB Group's Payment Has Solid Earnings Coverage

If it is predictable over a long period, even low dividend yields can be attractive. Prior to this announcement, AUB Group's dividend was only 63% of earnings, however it was paying out 122% of free cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Looking forward, earnings per share is forecast to rise by 36.0% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 52% by next year, which is in a pretty sustainable range. historic-dividend

AUB Group Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2014, the dividend has gone from A$0.355 total annually to A$0.79. This works out to be a compound annual growth rate (CAGR) of approximately 8.3% a year over that time. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. We are encouraged to see that AUB Group has grown earnings per share at 11% per year over the past five years. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.

Our Thoughts On AUB Group's Dividend

Overall, we always like to see the dividend being raised, but we don't think AUB Group will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think AUB Group is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 2 warning signs for AUB Group that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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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.