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The board of Pengana Capital Group Limited (ASX:PCG) has announced that it will be increasing its dividend by 100% on the 18th of September to A$0.02, up from last year's comparable payment of A$0.01. Despite this raise, the dividend yield of 2.7% is only a modest boost to shareholder returns.
Check out our latest analysis for Pengana Capital Group
Pengana Capital Group's Dividend Is Well Covered By Earnings
If it is predictable over a long period, even low dividend yields can be attractive. Even though Pengana Capital Group isn't generating a profit, it is generating healthy free cash flows that easily cover the dividend. In general, cash flows are more important than the more traditional measures of profit so we feel pretty comfortable with the dividend at this level.
Looking forward, earnings per share is forecast to rise exponentially over the next year. Assuming the dividend continues along recent trends, we think the payout ratio will be 29%, which makes us pretty comfortable with the sustainability of the dividend.
Pengana Capital Group's Dividend Has Lacked Consistency
It's comforting to see that Pengana Capital Group has been paying a dividend for a number of years now, however it has been cut at least once in that time. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The dividend has gone from an annual total of A$0.045 in 2017 to the most recent total annual payment of A$0.02. Dividend payments have fallen sharply, down 56% over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.
The Company Could Face Some Challenges Growing The Dividend
Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Pengana Capital Group has impressed us by growing EPS at 34% per year over the past five years. While the company hasn't yet recorded a profit, the growth rates are healthy. If profitability can be achieved soon and growth continues apace, this stock could certainly turn into a solid dividend payer.
In Summary
In summary, while it's always good to see the dividend being raised, we don't think Pengana Capital Group's payments are rock solid. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would be a touch cautious of relying on this stock primarily for the dividend income.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign for Pengana Capital Group that investors need to be conscious of moving forward. Is Pengana Capital Group 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.