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The board of JTC PLC (LON:JTC) has announced that it will be paying its dividend of £0.0824 on the 27th of June, an increased payment from last year's comparable dividend. Although the dividend is now higher, the yield is only 1.5%, which is below the industry average.
JTC's Projections Indicate Future Payments May Be Unsustainable
Estimates Indicate JTC's Could Struggle to Maintain Dividend Payments In The Future
JTC's Future Dividends May Potentially Be At Risk
While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. JTC is not generating a profit, but its free cash flows easily cover the dividend, leaving plenty for reinvestment in the business. We generally think that cash flow is more important than accounting measures of profit, so we are fairly comfortable with the dividend at this level.
Earnings per share is forecast to rise exponentially over the next year. Assuming the dividend continues along recent trends, we could see the payout ratio reach 206%, which is on the unsustainable side.
View our latest analysis for JTC
JTC Is Still Building Its Track Record
Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. The annual payment during the last 7 years was £0.02 in 2018, and the most recent fiscal year payment was £0.125. This works out to be a compound annual growth rate (CAGR) of approximately 30% a year over that time. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.
Dividend Growth Is Doubtful
The company's investors will be pleased to have been receiving dividend income for some time. Unfortunately things aren't as good as they seem. It's not great to see that JTC's earnings per share has fallen at approximately 9.7% per year over the past five years. 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. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.
The Dividend Could Prove To Be Unreliable
In summary, while it's always good to see the dividend being raised, we don't think JTC's payments are rock solid. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would probably look elsewhere for an income investment.