Inghams Group (ASX:ING) Is Paying Out A Larger Dividend Than Last Year

Inghams Group Limited (ASX:ING) has announced that it will be increasing its dividend from last year's comparable payment on the 5th of October to A$0.10. The payment will take the dividend yield to 4.2%, which is in line with the average for the industry.

See our latest analysis for Inghams Group

Inghams Group's Earnings Easily Cover The Distributions

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. The last payment made up 89% of earnings, but cash flows were much higher. 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.

Over the next year, EPS is forecast to expand by 86.1%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 47% which brings it into quite a comfortable range.

Inghams Group's Dividend Has Lacked Consistency

It's comforting to see that Inghams Group has been paying a dividend for a number of years now, however it has been cut at least once in that time. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The dividend has gone from an annual total of A$0.052 in 2017 to the most recent total annual payment of A$0.145. This implies that the company grew its distributions at a yearly rate of about 19% over that duration. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

Dividend Growth Potential Is Shaky

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings per share has been sinking by 12% over the last five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Inghams Group has 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about. Is Inghams Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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