Enero Group (ASX:EGG) Is Paying Out Less In Dividends Than Last Year

Enero Group Limited (ASX:EGG) is reducing its dividend from last year's comparable payment to A$0.045 on the 3rd of October. However, the dividend yield of 6.7% still remains in a typical range for the industry.

Check out our latest analysis for Enero Group

Enero Group Doesn't Earn Enough To Cover Its Payments

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Before making this announcement, Enero Group was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.

Looking forward, earnings per share is forecast to fall by 85.2% over the next year. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 153%, which is definitely a bit high to be sustainable going forward.

Enero Group's Dividend Has Lacked Consistency

Enero Group has been paying dividends for a while, but the track record isn't stellar. This suggests that the dividend might not be the most reliable. The dividend has gone from an annual total of A$0.03 in 2018 to the most recent total annual payment of A$0.11. This works out to be a compound annual growth rate (CAGR) of approximately 30% a year over that time. Enero Group has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Enero Group has impressed us by growing EPS at 44% per year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

We Really Like Enero Group's Dividend

In general, we don't like to see the dividend being cut, especially when the company has such high potential like Enero Group does. The cut will allow the company to continue paying out the dividend without putting the balance sheet under pressure, which means that it could remain sustainable for longer. Taking this all into consideration, this looks like it could be a good dividend opportunity.

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 4 warning signs for Enero Group you should be aware of, and 1 of them can't be ignored. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.