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Bytes Technology Group plc (LON:BYIT) has announced that it will be increasing its dividend from last year's comparable payment on the 4th of August to £0.126. This takes the dividend yield to 2.8%, which shareholders will be pleased with.
While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Bytes Technology Group's stock price has increased by 40% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.
Check out our latest analysis for Bytes Technology Group
Bytes Technology Group's Dividend Is Well Covered By Earnings
A big dividend yield for a few years doesn't mean much if it can't be sustained. The last payment was quite easily covered by earnings, but it made up 98% of cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.
The next year is set to see EPS grow by 29.3%. Assuming the dividend continues along recent trends, we think the payout ratio could be 69% by next year, which is in a pretty sustainable range.
Bytes Technology Group's Dividend Has Lacked Consistency
Even in its short history, we have seen the dividend cut. The dividend has gone from an annual total of £0.04 in 2021 to the most recent total annual payment of £0.15. This means that it has been growing its distributions at 94% per annum over that time. Bytes Technology 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.
The Dividend Looks Likely To Grow
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that Bytes Technology Group has grown earnings per share at 18% per year over the past three years. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.
In Summary
Overall, we always like to see the dividend being raised, but we don't think Bytes Technology Group will make a great income stock. While Bytes Technology Group is earning enough to cover the payments, the cash flows are lacking. We don't think Bytes Technology Group is a great stock to add to your portfolio if income is your focus.