Endeavour Group's (ASX:EDV) Shareholders Will Receive A Smaller Dividend Than Last Year

The board of Endeavour Group Limited (ASX:EDV) has announced it will be reducing its dividend by 2.6% from last year's payment of A$0.077 on the 27th of September, with shareholders receiving A$0.075. The dividend yield will be in the average range for the industry at 4.0%.

View our latest analysis for Endeavour Group

Endeavour Group's Payment Has Solid Earnings Coverage

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. At the time of the last dividend payment, Endeavour Group was paying out a very large proportion of what it was earning and 110% 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 9.9% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 65% by next year, which is in a pretty sustainable range.

Endeavour Group's Dividend Has Lacked Consistency

Looking back, the dividend has been unstable but with a relatively short history, we think it may be a bit early to draw conclusions about long term dividend sustainability. Since 2021, the dividend has gone from A$0.07 total annually to A$0.218. This means that it has been growing its distributions at 76% per annum over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. We are encouraged to see that Endeavour Group has grown earnings per share at 62% per year over the past three years. However, Endeavour Group isn't reinvesting a lot back into the business, so we wonder how quickly it will be able to grow in the future.

In Summary

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic 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 2 warning signs for Endeavour Group that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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