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Collins Foods Limited's (ASX:CKF) dividend will be increasing to AU$0.15 on 1st of August. The announced payment will take the dividend yield to 2.7%, which is in line with the average for the industry.
Collins Foods' Earnings Easily Cover the Distributions
We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Prior to this announcement, Collins Foods' dividend was comfortably covered by both cash flow and earnings. This indicates that quite a large proportion of earnings is being invested back into the business.
The next year is set to see EPS grow by 6.6%. If the dividend continues on this path, the payout ratio could be 59% by next year, which we think can be pretty sustainable going forward.
Collins Foods Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. The dividend has gone from AU$0.065 in 2012 to the most recent annual payment of AU$0.27. This means that it has been growing its distributions at 15% per annum over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.
The Dividend Looks Likely To Grow
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. It's encouraging to see Collins Foods has been growing its earnings per share at 10% a year over the past five years. Shareholders are getting plenty of the earnings returned to them, which combined with strong growth makes this quite appealing.
Collins Foods Looks Like A Great Dividend Stock
Overall, a dividend increase is always good, and we think that Collins Foods is a strong income stock thanks to its track record and growing earnings. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All in all, this checks a lot of the boxes we look for when choosing an income stock.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 1 warning sign for Collins Foods that you should be aware of before investing. Is Collins Foods not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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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.