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The board of Katana Capital Limited (ASX:KAT) has announced that it will pay a dividend on the 1st of November, with investors receiving A$0.005 per share. The dividend yield is 1.7% based on this payment, which is a little bit low compared to the other companies in the industry.
Check out our latest analysis for Katana Capital
Katana Capital's Payment Could Potentially Have Solid Earnings Coverage
It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Katana Capital 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.
If the trend of the last few years continues, EPS will grow by 0.5% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 26% 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 dividend has gone from an annual total of A$0.055 in 2014 to the most recent total annual payment of A$0.02. Doing the maths, this is a decline of about 9.6% per year. A company that decreases its dividend over time generally isn't what we are looking for.
Dividend Growth May Be Hard To Achieve
Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Although it's important to note that Katana Capital's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. Earnings growth is slow, but on the plus side, the dividend payout ratio is low and dividends could grow faster than earnings, if the company decides to increase its payout ratio.
In Summary
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While Katana Capital is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 3 warning signs for Katana Capital (1 doesn't sit too well with us!) that you should be aware of before investing. Is Katana 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.