SRG Global (ASX:SRG) Is Paying Out A Larger Dividend Than Last Year

SRG Global Limited (ASX:SRG) will increase its dividend on the 7th of October to A$0.02, which is 33% higher than last year's payment from the same period of A$0.015. This makes the dividend yield 5.9%, which is above the industry average.

View our latest analysis for SRG Global

SRG Global's Dividend Is Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, SRG Global was paying out quite a large proportion of both earnings and cash flow, with the dividend being 181% of cash flows. Paying out such a high proportion of cash flows certainly exposes the company to cutting the dividend if cash flows were to reduce.

Over the next year, EPS is forecast to expand by 63.4%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 53% which would be quite comfortable going to take the dividend forward.

SRG Global's Dividend Has Lacked Consistency

Looking back, the company hasn't been paying the most consistent dividend, but with such a short dividend history it could be too early to draw solid conclusions. The dividend has gone from an annual total of A$0.02 in 2019 to the most recent total annual payment of A$0.04. This means that it has been growing its distributions at 19% per annum over that time. SRG Global 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.

SRG Global's Dividend Might Lack Growth

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. SRG Global has impressed us by growing EPS at 44% per year over the past five years. Fast growing earnings are great, but this can rarely be sustained without some reinvestment into the business, which SRG Global hasn't been doing.

We should note that SRG Global has issued stock equal to 17% of shares outstanding. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

SRG Global's Dividend Doesn't Look Sustainable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. Strong earnings growth means SRG Global has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. We don't think SRG Global is a great stock to add to your portfolio if income is your focus.

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. For instance, we've picked out 2 warning signs for SRG Global that investors should take into consideration. 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.