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PTB Group Limited (ASX:PTB) has announced that it will be increasing its dividend on the 29th of October to AU$0.05. This will take the annual payment from 5.0% to 5.0% of the stock price, which is above what most companies in the industry pay.
While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Group's stock price has increased by 46% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.
Group's Earnings Easily Cover the Distributions
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Group's dividend was only 50% of earnings, however it was paying out 104% of free cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.
Looking forward, earnings per share is forecast to fall by 26.9% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could be 66%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.
Group's Dividend Has Lacked Consistency
Looking back, Group's dividend hasn't been particularly consistent. This suggests that the dividend might not be the most reliable. Since 2013, the first annual payment was AU$0.051, compared to the most recent full-year payment of AU$0.05. Dividend payments have shrunk at a rate of less than 1% per annum over this time frame. A company that decreases its dividend over time generally isn't what we are looking for.
The Dividend Looks Likely To Grow
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Group has seen EPS rising for the last five years, at 11% per annum. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.
Our Thoughts On Group's Dividend
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Group is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 6 warning signs for Group (1 makes us a bit uncomfortable!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.
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.
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