Korvest's (ASX:KOV) Dividend Will Be A$0.25

Korvest Ltd (ASX:KOV) has announced that it will pay a dividend of A$0.25 per share on the 7th of March. The dividend yield will be 6.3% based on this payment which is still above the industry average.

See our latest analysis for Korvest

Korvest's Payment Could Potentially Have Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. At the time of the last dividend payment, Korvest was paying out a very large proportion of what it was earning and 119% of cash flows. Paying out such a high proportion of cash flows can expose the business to needing to cut the dividend if the business runs into some challenges.

If the trend of the last few years continues, EPS will grow by 18.2% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 75%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was A$0.46 in 2015, and the most recent fiscal year payment was A$0.65. This implies that the company grew its distributions at a yearly rate of about 3.5% over that duration. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

Dividend Growth Could Be Constrained

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Korvest has impressed us by growing EPS at 18% per year over the past five years. The payout ratio is very much on the higher end, which could mean that the growth rate will slow down in the future, and that could flow through to the dividend as well.

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. Strong earnings growth means Korvest has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. We don't think Korvest is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 2 warning signs for Korvest that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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