Inghams Group's (ASX:ING) Dividend Will Be Reduced To A$0.005

Inghams Group Limited's (ASX:ING) dividend is being reduced from last year's payment covering the same period to A$0.005 on the 5th of October. The dividend yield will be in the average range for the industry at 2.6%.

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. Prior to this announcement, Inghams Group's dividend made up quite a large proportion of earnings but only 9.3% of free cash flows. This leaves plenty of cash for reinvestment into the business.

Looking forward, earnings per share is forecast to rise by 170.0% over the next year. If the dividend continues on this path, the payout ratio could be 28% by next year, which we think can be pretty sustainable going forward.

Inghams Group's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2016, the annual payment back then was A$0.052, compared to the most recent full-year payment of A$0.07. This implies that the company grew its distributions at a yearly rate of about 5.1% over that duration. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Inghams Group might have put its house in order since then, but we remain cautious.

Dividend Growth Potential Is Shaky

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings per share has been sinking by 11% 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. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

Our Thoughts On Inghams Group's Dividend

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. 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.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 2 warning signs for Inghams Group (1 can't be ignored!) that you should be aware of before investing. 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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