Animalcare Group plc (LON:ANCR) will increase its dividend from last year's comparable payment on the 19th of July to £0.03. The payment will take the dividend yield to 2.0%, which is in line with the average for the industry.

See our latest analysis for Animalcare Group

Animalcare Group's Earnings Easily Cover The Distributions

Unless the payments are sustainable, the dividend yield doesn't mean too much. Based on the last payment, Animalcare Group's profits didn't cover the dividend, but the company was generating enough cash instead. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

According to analysts, EPS should be several times higher next year. If the dividend continues along recent trends, we estimate the payout ratio will be 63%, which would make us comfortable with the dividend's sustainability, despite the levels currently being elevated.

Animalcare Group's Dividend Has Lacked Consistency

Animalcare Group has been paying dividends for a while, but the track record isn't stellar. This makes us cautious about the consistency of the dividend over a full economic cycle. The annual payment during the last 6 years was £0.04 in 2018, and the most recent fiscal year payment was £0.05. This means that it has been growing its distributions at 3.8% per annum over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

Animalcare Group Might Find It Hard To Grow Its Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Animalcare Group has seen EPS rising for the last five years, at 65% per annum. While EPS is growing rapidly, Animalcare Group paid out a very high 251% of its income as dividends. If earnings continue to grow, this dividend may be sustainable, but we think a payout this high definitely bears watching.

Our Thoughts On Animalcare Group's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would probably look elsewhere for an income investment.

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. Taking the debate a bit further, we've identified 3 warning signs for Animalcare Group that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.