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Duke Capital Limited (LON:DUKE) has announced that it will pay a dividend of £0.007 per share on the 14th of October. The dividend yield will be 8.4% based on this payment which is still above the industry average.
View our latest analysis for Duke Capital
Duke Capital's Payment Could Potentially Have Solid Earnings Coverage
A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, the dividend made up 100% of earnings, and the company was generating negative free cash flows. This high of a dividend payment could start to put pressure on the balance sheet in the future.
The next year is set to see EPS grow by 64.7%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 65% which brings it into quite a comfortable range.
Duke Capital's Dividend Has Lacked Consistency
Duke Capital has been paying dividends for a while, but the track record isn't stellar. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The annual payment during the last 7 years was £0.0196 in 2017, and the most recent fiscal year payment was £0.028. This implies that the company grew its distributions at a yearly rate of about 5.2% over that duration. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Duke Capital might have put its house in order since then, but we remain cautious.
Duke Capital Might Find It Hard To Grow Its Dividend
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Duke Capital has seen EPS rising for the last five years, at 21% per annum. While EPS is growing rapidly, Duke Capital paid out a very high 100% 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.
The Dividend Could Prove To Be Unreliable
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Duke Capital's payments, as there could be some issues with sustaining them into the future. Strong earnings growth means Duke Capital has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. We don't think Duke Capital is a great stock to add to your portfolio if income is your focus.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 1 warning sign for Duke Capital that you should be aware of before investing. Is Duke Capital 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.