Supply Network's (ASX:SNL) Shareholders Will Receive A Bigger Dividend Than Last Year

Supply Network Limited's (ASX:SNL) periodic dividend will be increasing on the 3rd of October to A$0.33, with investors receiving 18% more than last year's A$0.28. Even though the dividend went up, the yield is still quite low at only 1.9%.

See our latest analysis for Supply Network

Supply Network's Dividend Is Well Covered By Earnings

Even a low dividend yield can be attractive if it is sustained for years on end. Prior to this announcement, Supply Network's dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 216% of cash flows. Paying out such a high proportion of cash flows certainly exposes the company to cutting the dividend if cash flows were to reduce.

Looking forward, earnings per share is forecast to rise by 52.9% over the next year. If the dividend continues on this path, the payout ratio could be 62% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2014, the annual payment back then was A$0.08, compared to the most recent full-year payment of A$0.51. This works out to be a compound annual growth rate (CAGR) of approximately 20% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

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. It's encouraging to see that Supply Network has been growing its earnings per share at 27% a year over the past five years. EPS is growing rapidly, although the company is also paying out a large portion of its profits as dividends. If earnings keep growing, the dividend may be sustainable, but generally we'd prefer to see a fast growing company reinvest in further growth.

Our Thoughts On Supply Network's Dividend

Overall, we always like to see the dividend being raised, but we don't think Supply Network will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. 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 Supply Network (1 is significant!) that you should be aware of before investing. 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.