The board of Katana Capital Limited (ASX:KAT) has announced that it will pay a dividend on the 12th of August, with investors receiving A$0.005 per share. Including this payment, the dividend yield on the stock will be 1.9%, which is a modest boost for shareholders' returns.
Katana Capital's Payment Has Solid Earnings Coverage
It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. However, prior to this announcement, Katana Capital's dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.
Over the next year, EPS could expand by 64.3% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 7.4%, which is in the range that makes us comfortable with the sustainability of the dividend.
The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was A$0.05 in 2012, and the most recent fiscal year payment was A$0.02. Doing the maths, this is a decline of about 8.8% per year. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.
The Dividend Looks Likely To Grow
Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Katana Capital has impressed us by growing EPS at 64% per year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.
Katana Capital Looks Like A Great Dividend Stock
Overall, we think that this is a great income investment, and we think that maintaining the dividend this year may have been a conservative choice. Earnings are easily covering distributions, and the company is generating plenty of cash. 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 2 warning signs for Katana Capital you should be aware of, and 1 of them makes us a bit uncomfortable. If you are a dividend investor, you might also want to look at our curated list of high yield 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.
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