EVT (ASX:EVT) Is Increasing Its Dividend To A$0.22

EVT Limited (ASX:EVT) has announced that it will be increasing its dividend from last year's comparable payment on the 25th of September to A$0.22. This makes the dividend yield 2.7%, which is above the industry average.

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EVT's Projected Earnings Seem Likely To Cover Future Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, the company was paying out 185% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 44%. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

Analysts expect a massive rise in earnings per share in the next year. If recent patterns in the dividend continue, we could see the payout ratio reaching 55% which is fairly sustainable.

Check out our latest analysis for EVT

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2015, the dividend has gone from A$0.45 total annually to A$0.38. The dividend has shrunk at around 1.7% a year during that period. A company that decreases its dividend over time generally isn't what we are looking for.

Dividend Growth Could Be Constrained

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see that EVT has been growing its earnings per share at 44% a year over the past five years. EPS has been growing well, but EVT has been paying out a massive proportion of its earnings, which can make the dividend tough to maintain.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. 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. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 2 warning signs for EVT that you should be aware of before investing. Is EVT 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.