Shaver Shop Group (ASX:SSG) Has Announced That It Will Be Increasing Its Dividend To A$0.055

Shaver Shop Group Limited (ASX:SSG) will increase its dividend on the 20th of September to A$0.055, which is 10.0% higher than last year's payment from the same period of A$0.05. This makes the dividend yield 8.3%, which is above the industry average.

See our latest analysis for Shaver Shop Group

Shaver Shop 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. Before this announcement, Shaver Shop Group was paying out 76% of earnings, but a comparatively small 50% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

Earnings per share is forecast to rise by 17.5% over the next year. If recent patterns in the dividend continues, the payout ratio in 12 months could be 83% which is a bit high but can definitely be sustainable.

Shaver Shop Group's Dividend Has Lacked Consistency

It's comforting to see that Shaver Shop Group has been paying a dividend for a number of years now, however it has been cut at least once in that time. This makes us cautious about the consistency of the dividend over a full economic cycle. The annual payment during the last 6 years was A$0.032 in 2016, and the most recent fiscal year payment was A$0.10. This works out to be a compound annual growth rate (CAGR) of approximately 21% a year over that time. Shaver Shop 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.

Dividend Growth Could Be Constrained

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Shaver Shop Group has seen EPS rising for the last five years, at 12% per annum. EPS has been growing at a reasonable rate, although with most of the profits being paid out to shareholders, growth prospects could be more limited in the future.

Our Thoughts On Shaver Shop Group's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Shaver Shop Group's payments are rock solid. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We don't think Shaver Shop Group is a great stock to add to your portfolio if income is your focus.

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 instance, we've picked out 1 warning sign for Shaver Shop Group that investors should take into consideration. Is Shaver Shop Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.