How can you estimate future dividends? Here are 3 useful ways to prevent a long, nervous wait

Nick Sundich Nick Sundich, July 17, 2023

How can you estimate future dividends? One of the key reasons people buy stocks is for dividends but it is good to have an idea of how reliable a company will be in paying one and an indicative idea of what can be expected.

In this article, we look over 3 useful ways.


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How to estimate future dividends


1. Consider a company’s past history of paying dividends

One important factor is the company’s past dividend history. If the company has been consistently paying out dividends over time, it may be indicative of their commitment to continuing the practice in the future.

Amongst Australian shares, the big mining stocks and the big banks are consistent dividend payers.

Looking to US shares, many companies are. But there’s a group of companies called Dividend Aristocrats that have increased dividends for over 25 straight years. And a handful have done it for over 60!



Well, not yet. But there are 3 companies that are 75% of the way to 84 years and a handful of others nipping at the heels of that 75% milestone. We wrote about this list of companies a few days ago and noted our favourite stocks.




2. Looking at a company’s financial position

Secondly, analysing the company’s financial statements and cash flow can give investors insight into how much money is available to pay out in dividends and whether or not management is willing to share profits with shareholders.

The cash flow statement is particularly important because it cannot lie like the income statement can.

It is also important to consider the industry that the company operates in and its competitive landscape as this can help investors determine if there are conditions which could support dividend payments in the future.

Lastly under this point, keeping up with news surrounding the business and changes in macroeconomic conditions can provide investors with additional information that can influence decisions on investing for dividend income.


3. Consider a company’s dividend policy

Many companies will have a policy to pay out a certain percentage of its profit as dividends.

This makes your job as an investor a lot easier! Well, that is assuming you know what a profit will be. This is easier when a company provides guidance or when several analysts cover the stock and make their own forecasts.

Although of course, companies can (and do) miss them. And there can be hell to pay, especially when it was unexpected or if it is the company’s first reporting season as a publicly listed company.


But don’t forget about growth

All this being said, investors should not fail to neglect a stock’s growth prospects over income prospects.

After all, there’s a case to be made that the former can pay for the latter over time.

Many companies with a track record of paying dividends wouldn’t’ve been able to do so had they not grown at all, or perhaps just at GDP. And when companies enter tough times, they may have to suspend dividends altogether.

But ultimately, the ability to consistently pay and grow dividends over time may be a useful indication that a stock is a growth opportunity as well as being an income opportunity!


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