The board of Domain Holdings Australia Limited (ASX:DHG) has announced that it will pay a dividend of A$0.04 per share on the 12th of September. This makes the dividend yield 1.7%, which will augment investor returns quite nicely.

Check out our latest analysis for Domain Holdings Australia

Domain Holdings Australia's Payment Has Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, the company's dividend was much higher than its earnings. This situation certainly isn't ideal, and could place significant strain on the balance sheet if it continues.

The next year is set to see EPS grow by 124.0%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 47% which would be quite comfortable going to take the dividend forward. historic-dividend

Domain Holdings Australia's Dividend Has Lacked Consistency

It's comforting to see that Domain Holdings Australia has been paying a dividend for a number of years now, however it has been cut at least once in that time. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The dividend has gone from an annual total of A$0.08 in 2018 to the most recent total annual payment of A$0.06. Doing the maths, this is a decline of about 5.6% per year. A company that decreases its dividend over time generally isn't what we are looking for.

Dividend Growth Could Be Constrained

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Domain Holdings Australia has seen EPS rising for the last five years, at 40% per annum. EPS has been growing well, but Domain Holdings Australia has been paying out a massive proportion of its earnings, which can make the dividend tough to maintain.

Domain Holdings Australia's Dividend Doesn't Look Sustainable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. Strong earnings growth means Domain Holdings Australia has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Earnings growth generally bodes well for the future value of company dividend payments. See if the 12 Domain Holdings Australia analysts we track are forecasting continued growth with our freereport on analyst estimates for the company. Is Domain Holdings Australia not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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