Katana Capital (ASX:KAT) Has Affirmed Its Dividend Of A$0.005

Katana Capital Limited's (ASX:KAT) investors are due to receive a payment of A$0.005 per share on 12th of May. The dividend yield is 1.8% based on this payment, which is a little bit low compared to the other companies in the industry.

Check out our latest analysis for Katana Capital

Katana Capital's Earnings Easily Cover The Distributions

If it is predictable over a long period, even low dividend yields can be attractive. Before this announcement, Katana Capital was paying out 71% of earnings, but a comparatively small 28% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

Looking forward, could fall by 20.6% if the company can't turn things around from the last few years. Assuming the dividend continues along recent trends, we think the payout ratio could reach 77%, which is definitely on the higher side.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2013, the dividend has gone from A$0.04 total annually to A$0.02. Doing the maths, this is a decline of about 6.7% per year. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Dividend Growth Potential Is Shaky

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Earnings per share has been sinking by 21% over the last five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.

In Summary

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. This company is not in the top tier of income providing stocks.

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 Katana Capital you should be aware of, and 1 of them is a bit unpleasant. Is Katana Capital 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.