Yahoo Finance Character Group (LON:CCT) Is Increasing Its Dividend To £0.08
The board of The Character Group plc (LON:CCT) has announced that it will be paying its dividend of £0.08 on the 28th of July, an increased payment from last year's comparable dividend. This makes the dividend yield 6.0%, which is above the industry average.
See our latest analysis for Character Group
Character Group Is Paying Out More Than It Is Earning
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, Character Group was paying out a fairly large proportion of earnings, and it wasn't generating positive free cash flows either. Generally, we think that this would be a risky long term practice.
EPS is set to fall by 3.9% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 100%, which could put the dividend under pressure if earnings don't start to improve.
Dividend Volatility
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was £0.066 in 2013, and the most recent fiscal year payment was £0.18. This means that it has been growing its distributions at 11% per annum over that time. Character Group has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.
Dividend Growth May Be Hard To Achieve
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Character Group has seen earnings per share falling at 3.9% per year over the last five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth.
Character Group's Dividend Doesn't Look Sustainable
In summary, while it's always good to see the dividend being raised, we don't think Character Group's payments are rock solid. The track record isn't great, and the payments are a bit high to be considered sustainable. We would be a touch cautious of relying on this stock primarily for the dividend income.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. To that end, Character Group has 5 warning signs (and 2 which are a bit 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 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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