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The board of Avingtrans plc (LON:AVG) has announced that it will pay a dividend of £0.019 per share on the 27th of June. Despite this raise, the dividend yield of 1.3% is only a modest boost to shareholder returns.
Check out our latest analysis for Avingtrans
Avingtrans' Projected Earnings Seem Likely To Cover Future Distributions
While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Avingtrans is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.
Looking forward, earnings per share is forecast to rise by 47.4% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 27% by next year, which is in a pretty sustainable range.
Dividend Volatility
The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was £0.027 in 2015, and the most recent fiscal year payment was £0.047. This implies that the company grew its distributions at a yearly rate of about 5.7% over that duration. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.
The Dividend Looks Likely To Grow
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Avingtrans has seen EPS rising for the last five years, at 11% per annum. With a decent amount of growth and a low payout ratio, we think this bodes well for Avingtrans' prospects of growing its dividend payments in the future.
Our Thoughts On Avingtrans' Dividend
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 1 warning sign for Avingtrans that investors should take into consideration. 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.