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The board of Gamma Communications plc (LON:GAMA) has announced that the dividend on 19th of October will be increased to £0.057, which will be 14% higher than last year's payment of £0.05 which covered the same period. Although the dividend is now higher, the yield is only 1.4%, which is below the industry average.
See our latest analysis for Gamma Communications
Gamma Communications' Payment Has Solid Earnings Coverage
The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. However, Gamma Communications' earnings easily cover the dividend. This means that most of what the business earns is being used to help it grow.
Over the next year, EPS is forecast to expand by 43.4%. If the dividend continues along recent trends, we estimate the payout ratio will be 23%, which is in the range that makes us comfortable with the sustainability of the dividend.
Gamma Communications Is Still Building Its Track Record
The dividend's track record has been pretty solid, but with only 8 years of history we want to see a few more years of history before making any solid conclusions. The annual payment during the last 8 years was £0.0395 in 2015, and the most recent fiscal year payment was £0.15. This means that it has been growing its distributions at 18% per annum over that time. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.
The Dividend Looks Likely To Grow
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Gamma Communications has seen EPS rising for the last five years, at 15% per annum. Gamma Communications definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.
We Really Like Gamma Communications' Dividend
Overall, a dividend increase is always good, and we think that Gamma Communications is a strong income stock thanks to its track record and growing earnings. Distributions are quite easily covered by earnings, which are also being converted to cash flows. Taking this all into consideration, this looks like it could be a good dividend opportunity.
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. Earnings growth generally bodes well for the future value of company dividend payments. See if the 6 Gamma Communications analysts we track are forecasting continued growth with our free report on analyst estimates for the company. 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.