The board of Enero Group Limited (ASX:EGG) has announced that it will be increasing its dividend on the 6th of October to AU$0.044. This will take the dividend yield from 4.9% to 4.9%, providing a nice boost to shareholder returns.
Enero Group Might Find It Hard To Continue The Dividend
If the payments aren't sustainable, a high yield for a few years won't matter that much. While Enero Group is not profitable, it is paying out less than 75% of its free cash flow, which means that there is plenty left over for reinvestment into 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.
Assuming the trend of the last few years continues, EPS will grow by 16.2% over the next 12 months. While it is good to see income moving in the right direction, it still looks like the company won't achieve profitability. However, the positive cash flow ratio gives us some comfort about the sustainability of the dividend.
Enero Group Is Still Building Its Track Record
The company has maintained a consistent dividend for a few years now, but we would like to see a longer track record before relying on it. The first annual payment during the last 4 years was AU$0.03 in 2017, and the most recent fiscal year payment was AU$0.15. This works out to be a compound annual growth rate (CAGR) of approximately 49% a year over that time. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.
The Company Could Face Some Challenges Growing The Dividend
The company's investors will be pleased to have been receiving dividend income for some time. We are encouraged to see that Enero Group has grown earnings per share at 16% per year over the past five years. It's not an ideal situation that the company isn't turning a profit but the growth recently is a positive sign. As long as the company becomes profitable soon, it is on a trajectory that could see it being a solid dividend payer.
Our Thoughts On Enero Group's Dividend
Overall, we always like to see the dividend being raised, but we don't think Enero Group will make a great income stock. 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 don't think Enero Group is a great stock to add to your portfolio if income is your focus.
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. As an example, we've identified 1 warning sign for Enero Group that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.
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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