Euroz Hartleys Group (ASX:EZL) Is Reducing Its Dividend To A$0.0175

The board of Euroz Hartleys Group Limited (ASX:EZL) has announced it will be reducing its dividend by 30% from last year's payment of A$0.025 on the 16th of February, with shareholders receiving A$0.0175. The dividend yield of 6.8% is still a nice boost to shareholder returns, despite the cut.

See our latest analysis for Euroz Hartleys Group

Euroz Hartleys Group Doesn't Earn Enough To Cover Its Payments

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, the company was paying out 109% of what it was earning. This situation certainly isn't ideal, and could place significant strain on the balance sheet if it continues.

EPS is set to fall by 23.8% over the next 12 months if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio could reach 121%, which could put the dividend in jeopardy if the company's earnings don't improve.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the annual payment back then was A$0.0765, compared to the most recent full-year payment of A$0.06. This works out to be a decline of approximately 2.4% per year over that time. A company that decreases its dividend over time generally isn't what we are looking for.

Dividend Growth Potential Is Shaky

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Over the past five years, it looks as though Euroz Hartleys Group's EPS has declined at around 24% a year. 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.

We're Not Big Fans Of Euroz Hartleys Group's Dividend

To sum up, we don't like when dividends are cut, but in this case the dividend may have been too high to begin with. The company isn't making enough to be paying as much as it is, and the other factors don't look particularly promising either. We don't think that this is a great candidate to be an 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 3 warning signs for Euroz Hartleys Group you should be aware of, and 1 of them is concerning. Is Euroz Hartleys Group not quite the opportunity you were looking for? Why not check out our selection of top 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.