Hancock & Gore (ASX:HNG) Has Affirmed Its Dividend Of A$0.01

The board of Hancock & Gore Ltd (ASX:HNG) has announced that it will pay a dividend on the 12th of June, with investors receiving A$0.01 per share. This means the annual payment is 6.8% of the current stock price, which is above the average for the industry.

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Hancock & Gore's Distributions May Be Difficult To Sustain

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Hancock & Gore is unprofitable despite paying a dividend, and it is paying out 702% of its free cash flow. This is quite a strong warning sign that the dividend may not be sustainable.

Over the next year, EPS could expand by 26.0% if recent trends continue. The company seems to be going down the right path, but it will probably take a little bit longer than a year to cross over into profitability. Unless this can be done in short order, the dividend might be difficult to sustain.

Check out our latest analysis for Hancock & Gore

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of A$0.015 in 2015 to the most recent total annual payment of A$0.02. This implies that the company grew its distributions at a yearly rate of about 2.9% over that duration. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

The Company Could Face Some Challenges Growing The Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Hancock & Gore has impressed us by growing EPS at 26% per year over the past five years. While the company is not yet turning a profit, it is growing at a good rate. If the company can turn a profit relatively soon, we can see this becoming a reliable income stock.

An additional note is that the company has been raising capital by issuing stock equal to 68% of shares outstanding in the last 12 months. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

The Dividend Could Prove To Be Unreliable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While we generally think the level of distributions are a bit high, we wouldn't rule it out as becoming a good dividend payer in the future as its earnings are growing healthily. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 3 warning signs for Hancock & Gore 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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