Eumundi Group (ASX:EBG) Is Paying Out A Dividend Of A$0.035

Eumundi Group Limited's (ASX:EBG) investors are due to receive a payment of A$0.035 per share on 13th of September. Based on this payment, the dividend yield on the company's stock will be 6.1%, which is an attractive boost to shareholder returns.

See our latest analysis for Eumundi Group

Eumundi Group Is Paying Out More Than It Is Earning

If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last payment, Eumundi Group was paying only paying out a fraction of earnings, but the payment was a massive 146% of cash flows. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Looking forward, EPS could fall by 21.1% if the company can't turn things around from the last few years. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 267%, which could put the dividend under pressure if earnings don't start to improve.

Eumundi Group's Dividend Has Lacked Consistency

Eumundi Group has been paying dividends for a while, but the track record isn't stellar. This suggests that the dividend might not be the most reliable. The annual payment during the last 8 years was A$0.04 in 2015, and the most recent fiscal year payment was A$0.07. This works out to be a compound annual growth rate (CAGR) of approximately 7.2% a year over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

The Dividend Has Limited Growth Potential

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. Earnings per share has been sinking by 21% over the last five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future.

The Dividend Could Prove To Be Unreliable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Eumundi Group's payments, as there could be some issues with sustaining them into the future. While Eumundi Group is earning enough to cover the payments, the cash flows are lacking. We don't think Eumundi Group is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 7 warning signs for Eumundi Group (of which 3 shouldn't be ignored!) you should know about. 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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