Epwin Group PLC (LON:EPWN) has announced that it will be increasing its dividend on the 6th of June to UK£0.024. This takes the dividend yield to 4.6%, which shareholders will be pleased with.
See our latest analysis for Epwin Group
Epwin Group's Earnings Easily Cover the Distributions
A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Epwin Group's dividend was comfortably covered by both cash flow and earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.
Looking forward, earnings per share is forecast to fall by 0.08% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 38%, which we are pretty comfortable with and we think is feasible on an earnings basis.
Epwin Group's Dividend Has Lacked Consistency
Even in its relatively short history, the company has reduced the dividend at least once. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The dividend has gone from UK£0.028 in 2014 to the most recent annual payment of UK£0.047. This works out to be a compound annual growth rate (CAGR) of approximately 6.6% 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.
Dividend Growth May Be Hard To Come By
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. In the last five years, Epwin Group's earnings per share has shrunk at approximately 9.0% per annum. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed.
In Summary
In summary, while it's always good to see the dividend being raised, we don't think Epwin Group's payments are rock solid. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. Overall, we don't think this company has the makings of a good income stock.
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 1 warning sign for Epwin Group that you should be aware of before investing. Is Epwin Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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