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Dynacor Group Inc. (TSE:DNG) will pay a dividend of $0.0133 on the 15th of May. This means the annual payment is 3.1% of the current stock price, which is above the average for the industry.
We've discovered 2 warning signs about Dynacor Group. View them for free.
Dynacor Group's Projected Earnings Seem Likely To Cover Future Distributions
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before making this announcement, Dynacor Group was easily earning enough to cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.
If the trend of the last few years continues, EPS will grow by 24.7% over the next 12 months. If the dividend continues on this path, the payout ratio could be 37% by next year, which we think can be pretty sustainable going forward.
Check out our latest analysis for Dynacor Group
Dynacor Group's Dividend Has Lacked Consistency
It's comforting to see that Dynacor Group has been paying a dividend for a number of years now, however it has been cut at least once in that time. This suggests that the dividend might not be the most reliable. The annual payment during the last 7 years was $0.0301 in 2018, and the most recent fiscal year payment was $0.11. This means that it has been growing its distributions at 20% per annum over that time. Dynacor 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 Dynacor Group has grown earnings per share at 25% per year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.
An additional note is that the company has been raising capital by issuing stock equal to 16% of shares outstanding in the last 12 months. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.
We Really Like Dynacor Group's Dividend
Overall, we like to see the dividend staying consistent, and we think Dynacor Group might even raise payments in the future. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All in all, this checks a lot of the boxes we look for when choosing an income stock.