Dusk Group (ASX:DSK) Is Reducing Its Dividend To AU$0.10

Dusk Group Limited's (ASX:DSK) dividend is being reduced to AU$0.10 on the 28th of March. The yield is still above the industry average at 7.8%.

View our latest analysis for Dusk Group

Dusk Group's Payment Has Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Dusk Group's dividend made up quite a large proportion of earnings but only 42% of free cash flows. 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.

Looking forward, earnings per share is forecast to fall by 1.5% over the next year. Assuming the dividend continues along recent trends, the payout ratio in 12 months could be 63%, which is more comfortable than the current payout ratio.

Dusk Group Doesn't Have A Long Payment History

The company hasn't been paying a dividend for very long at all, so we can't really make a judgement on how stable the dividend has been. This doesn't mean that the company can't pay a good dividend, but just that we want to wait until it can prove itself.

The Dividend's Growth Prospects Are Limited

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Dusk Group hasn't been able to move the EPS much over the last year. Performance in any given year is not a huge concern, but we'd point out that all of the best dividend stocks regularly grow their earnings over the long term. We do note though, one year is too short a time to be drawing strong conclusions about a company's future prospects.

Our Thoughts On Dusk Group's Dividend

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. 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 probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 2 warning signs for Dusk Group that investors need to be conscious of moving forward. Is Dusk Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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