Warpaint London PLC's (LON:W7L) periodic dividend will be increasing on the 25th of November to £0.026, with investors receiving 4.0% more than last year's £0.025. This takes the dividend yield to 4.6%, which shareholders will be pleased with.
Warpaint London's Payment Has Solid Earnings Coverage
If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Warpaint London's dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 451% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.
Over the next year, EPS could expand by 6.9% if the company continues along the path it has been on recently. If the dividend continues along recent trends, we estimate the payout ratio could reach 91%, which is on the higher side, but certainly still feasible.
Warpaint London's Dividend Has Lacked Consistency
Looking back, Warpaint London's dividend hasn't been particularly consistent. This suggests that the dividend might not be the most reliable. The dividend has gone from an annual total of £0.015 in 2017 to the most recent total annual payment of £0.06. This works out to be a compound annual growth rate (CAGR) of approximately 32% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.
Warpaint London Could Grow Its Dividend
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Warpaint London has impressed us by growing EPS at 6.9% per year over the past five years. Recently, the company has been able to grow earnings at a decent rate, but with the payout ratio on the higher end we don't think the dividend has many prospects for growth.
Warpaint London's Dividend Doesn't Look Sustainable
Overall, we always like to see the dividend being raised, but we don't think Warpaint London will make a great income stock. The payments are bit high to be considered sustainable, and the track record isn't the best. This company is not in the top tier of income providing stocks.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. 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 3 warning signs for Warpaint London (1 shouldn't be ignored!) that you should be aware of before investing. Is Warpaint London not quite the opportunity you were looking for? Why not check out our selection of top 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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