Yahoo Finance Castings (LON:CGS) Is Increasing Its Dividend To UK£0.12
The board of Castings P.L.C. (LON:CGS) has announced that it will be increasing its dividend by 2.5% on the 23rd of August to UK£0.12. Even though the dividend went up, the yield is still quite low at only 3.9%.
Check out our latest analysis for Castings
Castings Doesn't Earn Enough To Cover Its Payments
The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Before making this announcement, the company's dividend was higher than its profits, and made up 91% of cash flows. This indicates that the company could be more focused on returning cash to shareholders than reinvesting to grow the business.
EPS is set to fall by 25.9% over the next 12 months if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio could reach 255%, which could put the dividend in jeopardy if the company's earnings don't improve.
Castings Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2011, the dividend has gone from UK£0.10 to UK£0.15. This means that it has been growing its distributions at 4.3% per annum over that time. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.
The Dividend Has Limited Growth Potential
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Let's not jump to conclusions as things might not be as good as they appear on the surface. Over the past five years, it looks as though Castings' EPS has declined at around 26% a year. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.
Castings' Dividend Doesn't Look Sustainable
Overall, we always like to see the dividend being raised, but we don't think Castings will make a great income stock. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. Overall, we don't think this company has the makings of a good income stock.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Castings has 4 warning signs (and 1 which is concerning) we think you should know about. 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. 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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