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The board of Avingtrans plc (LON:AVG) has announced that it will pay a dividend on the 27th of June, with investors receiving £0.019 per share. Even though the dividend went up, the yield is still quite low at only 1.4%.
We've discovered 1 warning sign about Avingtrans. View them for free.
Avingtrans' Future Dividend Projections Appear Well Covered By Earnings
If it is predictable over a long period, even low dividend yields can be attractive. Based on the last payment, Avingtrans was earning enough to cover the dividend, but free cash flows weren't positive. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.
Looking forward, earnings per share is forecast to rise by 47.4% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 27%, which is in the range that makes us comfortable with the sustainability of the dividend.
See our latest analysis for Avingtrans
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2015, the annual payment back then was £0.027, compared to the most recent full-year payment of £0.048. This works out to be a compound annual growth rate (CAGR) of approximately 5.9% a year over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.
The Dividend Looks Likely To Grow
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that Avingtrans has grown earnings per share at 11% per year over the past five years. Avingtrans definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.
In Summary
In summary, while it's always good to see the dividend being raised, we don't think Avingtrans' payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Avingtrans 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 1 warning sign for Avingtrans that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.