RFG Holdings Limited's (JSE:RFG) dividend will be increasing from last year's payment of the same period to ZAR0.62 on 22nd of January. Based on this payment, the dividend yield for the company will be 5.0%, which is fairly typical for the industry.
Check out our latest analysis for RFG Holdings
RFG Holdings' Earnings Easily Cover The Distributions
Unless the payments are sustainable, the dividend yield doesn't mean too much. However, RFG Holdings' earnings easily cover the dividend. This means that most of what the business earns is being used to help it grow.
Looking forward, earnings per share is forecast to rise by 21.7% over the next year. If the dividend continues on this path, the payout ratio could be 29% by next year, which we think can be pretty sustainable going forward.
RFG Holdings' Dividend Has Lacked Consistency
RFG Holdings has been paying dividends for a while, but the track record isn't stellar. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The annual payment during the last 8 years was ZAR0.248 in 2015, and the most recent fiscal year payment was ZAR0.62. This works out to be a compound annual growth rate (CAGR) of approximately 12% a year over that time. RFG Holdings 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 evaluate if earnings per share is growing, which could point to a growing dividend in the future. It's encouraging to see that RFG Holdings has been growing its earnings per share at 25% a year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.
RFG Holdings Looks Like A Great Dividend Stock
In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. 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.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 2 warning signs for RFG Holdings that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.