Is Altium’s (ASX:ALU) dividend growth star fading?

With a recent dividend cut, is Altium Limited (ASX:ALU)’s status as an ASX dividend growth share now over? Let’s dig a little deeper

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Rewind the clock a year, and ASX growth star Altium Limited (ASX: ALU) was the talk of the town. As one of the A’s in the exclusive WAAAX club of ASX growth shares, Altium could seemingly do no wrong. On Valentine’s Day 2020 (14 February for those less-romantically minded), Altium peaked at a share price of $41.82. That price represented a gain of more than 50% over the preceding 12 months and more than 600% since March 2016.

But it hasn’t been an easy ride for investors since. From 14 February 2020 until today, Altium shares have lost around 38% of their value. The current share price is $25.97 at the time of writing. In fact, you can buy Altium shares right now for not too dissimilar a price from where you could during the worst throes of the coronavirus market crash last year. That’s a similar price in turn to what you could have gotten back in August 2018. That’s a while ago now.

An ASX dividend growth star is born

But until 2020, one aspect of Altium’s success story remained in-tact — it’s status as a dividend growth star. Unlike fellow WAAAXers Afterpay Ltd (ASX: APT) and Xero Limited (ASX: XRO), Altium pays a dividend and has done so uninterruptedly since October 2012.

In 2013, Altium’s dividend came in at an annual payout of 11 US cents per share. This was increased every year until 2020 when the company paid an interim dividend of 20 US cents per share, and a final dividend of 19 cents per share for a total of 39 US cents per share. That represents a compounded annual growth rate (CAGR) of 19.82% over those 7 years, exactly what a dividend growth investor would like to see.

However, 2021 tells a different story. Altium reported its half-year earnings last month, and dividend growth investors would have got a shock. Altium announced an interim dividend of 19 US cents per share, which is a 5% drop on the previous year’s interim dividend of US 20 cents per share. Altium’s dividend growth streak has, sadly, come to an end.

If the shock of this move has died down for you, it’s worth remembering that Altium has never made any commitment to doling out ever-increasing dividends for its shareholders. Rather, it’s official dividend policy is to “aim to pay ordinary dividends each year within the range of 50-80% of net profit”.

In that same earnings report where Altium delivered the bad news, the company reported a net profit after tax of US$16.6 million, which was a 12% drop from the prior corresponding period. Since profits dropped, it makes total sense that the dividends would also drop under this policy.

Will Altium return to dividend growth?

Logically, for Altium to return to dividend growth, it’s profits must lead the way. Luckily for investors, the company’s management seems confident this will be the case. Altium CEO Aram Mirkazemi stated in the earnings report that, “I am confident of a much stronger second half. Early signs are positive for this”.

No doubt that any dividend growth investors who hold Altium shares are keeping their fingers crossed that Mr. Mirkazemi is right.

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Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. recommends Altium. The Motley Fool Australia owns shares of AFTERPAY T FPO, Altium, and Xero. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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