Stock Analysis

Shaver Shop Group (ASX:SSG) Is Increasing Its Dividend To AU$0.05

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ASX:SSG
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Shaver Shop Group Limited's (ASX:SSG) dividend will be increasing to AU$0.05 on 23rd of September. This makes the dividend yield 7.6%, which is above the industry average.

See our latest analysis for Shaver Shop Group

Shaver Shop Group's Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. However, prior to this announcement, Shaver Shop Group's dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.

Over the next year, EPS is forecast to fall by 14.4%. If the dividend continues along recent trends, we estimate the payout ratio could be 72%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

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ASX:SSG Historic Dividend September 2nd 2021

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. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The first annual payment during the last 5 years was AU$0.032 in 2016, and the most recent fiscal year payment was AU$0.10. This implies that the company grew its distributions at a yearly rate of about 26% over that duration. 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.

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. Shaver Shop Group has seen EPS rising for the last five years, at 25% per annum. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

We Really Like Shaver Shop Group's Dividend

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. The earnings easily cover the company's distributions, and the company is generating plenty of cash. We should point out that the earnings are expected to fall over the next 12 months, which won't be a problem if this doesn't become a trend, but could cause some turbulence in the next year. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for Shaver Shop Group that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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