The Character Group plc (LON: CCT) has announced that it will increase its dividend on July 30 to UK £ 0.06. This brings the annual payout to 1.4% of the current share price, which is sadly less than what the industry is paying.
While the dividend yield is important for income investors, it is also important to consider any significant change in the price of the shares, as it will generally outweigh any gains from distributions. Investors will be happy to see that Character Group’s share price has risen 44% in the past 3 months, which is good for shareholders and may also explain a drop in dividend yield.
Check out our latest analysis for Character Group
Character Group earnings easily cover distributions
It would be nice if the yield was higher, but we should also check whether higher levels of dividend payouts would be viable. Before making this announcement, Character Group was easily earning enough to cover the dividend. This means that most of its profits are kept to grow the business.
Going forward, earnings per share are expected to increase by 39.7% over the next year. If the dividend continues on that path, the payout ratio could be 20% by next year, which we believe can be quite sustainable going forward.
Although the company has a long history of dividends, it has been cut at least once in the past 10 years. Since 2011, the dividend has increased from UK £ 0.04 to UK £ 0.09. This works out to a compound annual growth rate (CAGR) of around 8.4% per year during that time. We like to see dividends growing at a reasonable rate, but with at least a substantial reduction in payouts, we’re not sure this dividend would be ideal for someone who intends to live off that income.
Dividend growth is questionable
With a relatively volatile dividend, it is even more important to assess whether earnings per share are increasing, which could indicate a growing dividend in the future. Character Group has seen its earnings per share drop 5.3% per year over the past five years. If the company earns less over time, it naturally follows that it will also have to pay less dividends. Profits are expected to rise over the next year, but we will remain cautious until a track record of earnings growth is established.
Our thoughts on the Character Group dividend
Overall, we still like to see the dividend go up, but we don’t think Character Group will make a good income. The company generates a lot of cash which could keep the dividend going for a while, but the track record is not great. We would be a little cautious to rely on this stock primarily for dividend income.
Investors generally tend to favor companies with a consistent and stable dividend policy over those with an irregular policy. However, there are other things for investors to consider when analyzing the performance of stocks. As an example, we have identified 3 warning signs for the group of characters which you should be aware of before investing. Looking for more high yield dividend ideas? Try our organized list of good dividend payers.
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