Eumundi Group (ASX:EBG) Has Affirmed Its Dividend Of A$0.0375

The board of Eumundi Group Limited (ASX:EBG) has announced that it will pay a dividend on the 11th of September, with investors receiving A$0.0375 per share. This means the annual payment is 6.5% of the current stock price, which is above the average for the industry.

See our latest analysis for Eumundi Group

Eumundi Group's Payment Has Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. At the time of the last dividend payment, Eumundi Group was paying out a very large proportion of what it was earning and 106% of cash flows. Paying out such a high proportion of cash flows can expose the business to needing to cut the dividend if the business runs into some challenges.

Earnings per share could rise by 7.8% over the next year if things go the same way as they have for the last few years. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 93%, which is definitely on the higher side, but we wouldn't necessarily say this is unsustainable.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2014, the dividend has gone from A$0.04 total annually to A$0.075. This means that it has been growing its distributions at 6.5% per annum over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

The Dividend Has Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that Eumundi Group has grown earnings per share at 7.8% per year over the past five years. 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.

Eumundi Group's Dividend Doesn't Look Sustainable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The payments are bit high to be considered sustainable, and the track record isn't the best. We don't think Eumundi Group is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 6 warning signs for Eumundi Group (of which 2 are a bit unpleasant!) you should know about. Is Eumundi Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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