CountPlus' (ASX:CUP) Dividend Will Be Increased To A$0.02

CountPlus Limited (ASX:CUP) has announced that it will be increasing its dividend from last year's comparable payment on the 12th of October to A$0.02. This will take the annual payment to 5.6% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for CountPlus

CountPlus' Dividend Is Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, CountPlus was paying out 76% of earnings and more than 75% of free cash flows. This is usually an indication that the focus of the company is returning cash to shareholders rather than reinvesting it for growth.

The next year is set to see EPS grow by 76.3%. If the dividend continues along recent trends, we estimate the payout ratio will be 34%, 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. Since 2012, the dividend has gone from A$0.12 total annually to A$0.04. This works out to a decline of approximately 67% over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

CountPlus Might Find It Hard To Grow Its Dividend

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. CountPlus has impressed us by growing EPS at 31% 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 CountPlus hasn't been doing.

Our Thoughts On CountPlus' Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. In general, the distributions are a little bit higher than we would like, but we can't ignore the fact the quickly growing earnings gives this stock great potential in the future. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 3 warning signs for CountPlus that investors should take into consideration. 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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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.