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The board of Eurocell plc (LON:ECEL) has announced that it will be paying its dividend of £0.072 on the 17th of May, an increased payment from last year's comparable dividend. This makes the dividend yield 7.9%, which is above the industry average.
See our latest analysis for Eurocell
Eurocell Is Paying Out More Than It Is Earning
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Based on the last payment, Eurocell was quite comfortably earning enough to cover the dividend. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.
Over the next year, EPS is forecast to fall by 50.3%. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 104%, which is definitely a bit high to be sustainable going forward.
Eurocell's Dividend Has Lacked Consistency
Eurocell has been paying dividends for a while, but the track record isn't stellar. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The dividend has gone from an annual total of £0.054 in 2015 to the most recent total annual payment of £0.107. This works out to be a compound annual growth rate (CAGR) of approximately 8.9% a year over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.
Dividend Growth May Be Hard To Achieve
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Although it's important to note that Eurocell's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time.
In Summary
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would probably look elsewhere for an income investment.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 2 warning signs for Eurocell (of which 1 makes us a bit uncomfortable!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.