Pengana Capital Group (ASX:PCG) Has Announced That It Will Be Increasing Its Dividend To AU$0.08

The board of Pengana Capital Group Limited (ASX:PCG) has announced that it will be increasing its dividend on the 20th of September to AU$0.08. This will take the annual payment from 6.3% to 10% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for Pengana Capital Group

Pengana Capital Group Is Paying Out More Than It Is Earning

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, Pengana Capital Group was paying only paying out a fraction of earnings, but the payment was a massive 99% of cash flows. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.

EPS is set to grow by 28.6% over the next year if recent trends continue. If the dividend continues on its recent course, the payout ratio in 12 months could be 129%, which is a bit high and could start applying pressure to the balance sheet.

Pengana Capital Group's Dividend Has Lacked Consistency

Looking back, the company hasn't been paying the most consistent dividend, but with such a short dividend history it could be too early to draw solid conclusions. Since 2017, the dividend has gone from AU$0.045 to AU$0.13. This works out to be a compound annual growth rate (CAGR) of approximately 30% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Looks Likely To Grow

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. We are encouraged to see that Pengana Capital Group has grown earnings per share at 29% per year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

Our Thoughts On Pengana Capital Group's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Pengana Capital Group's payments are rock solid. While Pengana Capital Group is earning enough to cover the payments, the cash flows are lacking. We don't think Pengana Capital Group is a great stock to add to your portfolio if income is your focus.

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. For example, we've picked out 2 warning signs for Pengana Capital Group that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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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.
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