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The board of Kitwave Group plc (LON:KITW) has announced that it will be increasing its dividend by 10% on the 26th of April to £0.0745, up from last year's comparable payment of £0.0675. The payment will take the dividend yield to 3.2%, which is in line with the average for the industry.
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 Kitwave Group's stock price has increased by 32% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.
See our latest analysis for Kitwave Group
Kitwave Group Is Paying Out More Than It Is Earning
While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Prior to this announcement, Kitwave Group's dividend was comfortably covered by both cash flow and earnings. This indicates that quite a large proportion of earnings is being invested back into the business.
EPS is set to fall by 59.5% over the next 12 months if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio could reach 113%, which could put the dividend in jeopardy if the company's earnings don't improve.
Kitwave Group's Dividend Has Lacked Consistency
The track record isn't the longest, but we are already seeing a bit of instability in the payments. The dividend has gone from an annual total of £0.045 in 2021 to the most recent total annual payment of £0.112. This means that it has been growing its distributions at 36% per annum over that time. Kitwave 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.
Dividend Growth Potential Is Shaky
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Kitwave Group's earnings per share has shrunk at 60% a year over the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.
Our Thoughts On Kitwave Group's Dividend
Overall, we always like to see the dividend being raised, but we don't think Kitwave Group will make a great income stock. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We don't think Kitwave Group is a great stock to add to your portfolio if income is your focus.