SG Fleet Group's (ASX:SGF) Upcoming Dividend Will Be Larger Than Last Year's

The board of SG Fleet Group Limited (ASX:SGF) has announced that it will be increasing its dividend by 6.8% on the 15th of September to A$0.0727, up from last year's comparable payment of A$0.0681. This will take the dividend yield to an attractive 5.7%, providing a nice boost to shareholder returns.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that SG Fleet Group's stock price has increased by 35% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

View our latest analysis for SG Fleet Group

SG Fleet Group's Earnings Easily Cover The Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, SG Fleet Group's dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 1,531% 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.

Looking forward, earnings per share is forecast to rise by 40.6% over the next year. If the dividend continues on this path, the payout ratio could be 54% by next year, which we think can be pretty sustainable going forward.

SG Fleet Group's Dividend Has Lacked Consistency

It's comforting to see that SG Fleet Group has been paying a dividend for a number of years now, however it has been cut at least once in that time. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The annual payment during the last 9 years was A$0.04 in 2014, and the most recent fiscal year payment was A$0.157. This works out to be a compound annual growth rate (CAGR) of approximately 16% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's not great to see that SG Fleet Group's earnings per share has fallen at approximately 3.4% per year over the past five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

The Dividend Could Prove To Be Unreliable

In summary, while it's always good to see the dividend being raised, we don't think SG Fleet Group's payments are rock solid. While SG Fleet Group is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. To that end, SG Fleet Group has 2 warning signs (and 1 which is concerning) we think you should know about. Is SG Fleet Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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