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The board of Zigup Plc (LON:ZIG) has announced that it will be paying its dividend of £0.175 on the 27th of September, an increased payment from last year's comparable dividend. This will take the annual payment to 6.1% of the stock price, which is above what most companies in the industry pay.
View our latest analysis for Zigup
Zigup's Payment Has Solid Earnings Coverage
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, Zigup was quite comfortably earning enough to cover the dividend. This indicates that quite a large proportion of earnings is being invested back into the business.
Over the next year, EPS is forecast to fall by 17.4%. If the dividend continues along recent trends, we estimate the payout ratio could be 59%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.
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 £0.092 in 2014 to the most recent total annual payment of £0.258. This works out to be a compound annual growth rate (CAGR) of approximately 11% a year over that time. Zigup 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.
Zigup Could Grow Its Dividend
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. We are encouraged to see that Zigup has grown earnings per share at 7.9% per year over the past five years. The company is paying a reasonable amount of earnings to shareholders, and is growing earnings at a decent rate so we think it could be a decent dividend stock.
Our Thoughts On Zigup's Dividend
Overall, this is a reasonable dividend, and it being raised is an added bonus. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. The payment isn't stellar, but it could make a decent addition to a dividend portfolio.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Zigup has 3 warning signs (and 2 which make us uncomfortable) we think you should know about. Is Zigup not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.