Collins Foods (ASX:CKF) Will Pay A Larger Dividend Than Last Year At AU$0.12

Collins Foods Limited (ASX:CKF) has announced that it will be increasing its dividend on the 22nd of December to AU$0.12. This makes the dividend yield about the same as the industry average at 1.9%.

See our latest analysis for Collins Foods

Collins Foods' Earnings Easily Cover the Distributions

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Prior to this announcement, Collins Foods' dividend was comfortably covered by both cash flow and earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

Looking forward, earnings per share is forecast to rise by 37.3% over the next year. If the dividend continues on this path, the payout ratio could be 53% by next year, which we think can be pretty sustainable going forward.

Collins Foods Doesn't Have A Long Payment History

Collins Foods' dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. The first annual payment during the last 9 years was AU$0.065 in 2012, and the most recent fiscal year payment was AU$0.24. This means that it has been growing its distributions at 16% per annum over that time. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.

The Dividend's Growth Prospects Are Limited

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, Collins Foods has only grown its earnings per share at 2.8% per annum over the past five years. Growth of 2.8% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. This could mean the dividend doesn't have the growth potential we look for going into the future.

In Summary

Overall, this is a reasonable dividend, and it being raised is an added bonus. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

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. For example, we've picked out 1 warning sign for Collins Foods that investors should know about before committing capital to this stock. We have also put together a list of global stocks with a solid dividend.

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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.