Stock Analysis

Endeavour Group's (ASX:EDV) Upcoming Dividend Will Be Larger Than Last Year's

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The board of Endeavour Group Limited (ASX:EDV) has announced that the dividend on 16th of September will be increased to A$0.077, which will be 10.0% higher than last year's payment of A$0.07 which covered the same period. This makes the dividend yield about the same as the industry average at 2.8%.

See our latest analysis for Endeavour Group

Endeavour Group's Dividend Is Well Covered By Earnings

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Before this announcement, Endeavour Group was paying out 73% of earnings, but a comparatively small 54% of free cash flows. This leaves plenty of cash for reinvestment into the business.

Looking forward, earnings per share is forecast to rise by 22.1% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 66%, which is in the range that makes us comfortable with the sustainability of the dividend.

ASX:EDV Historic Dividend August 25th 2022

Endeavour Group Is Still Building Its Track Record

It's not possible for us to make a backward looking judgement just based on a short payment history. This doesn't mean that the company can't pay a good dividend, but just that we want to wait until it can prove itself.

The Dividend Looks Likely To Grow

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. EPS has grown 12% over the last 12 months. Rising earnings will make it easier for the company to keep paying dividends, and possibly even increase them. Recently, the company has been able to grow earnings at a decent rate, but with the payout ratio on the higher end we don't think the dividend has many prospects for growth. However, we would never make any decisions based on only a single year of data, especially when assessing long term dividend potential.

Our Thoughts On Endeavour Group's Dividend

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 1 warning sign for Endeavour Group 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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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.