Shaver Shop Group (ASX:SSG) Is Paying Out A Dividend Of A$0.055

The board of Shaver Shop Group Limited (ASX:SSG) has announced that it will pay a dividend of A$0.055 per share on the 18th of September. This means the annual payment is 6.7% of the current stock price, which is above the average for the industry.

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Shaver Shop Group's Payment Could Potentially Have Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, Shaver Shop Group's dividend made up quite a large proportion of earnings but only 74% 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.

Over the next year, EPS is forecast to expand by 22.9%. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 86% - on the higher side, but we wouldn't necessarily say this is unsustainable.

View our latest analysis for Shaver Shop Group

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. Since 2016, the annual payment back then was A$0.032, compared to the most recent full-year payment of A$0.103. This means that it has been growing its distributions at 14% per annum 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.

Shaver Shop Group Could Grow Its Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Shaver Shop Group has seen EPS rising for the last five years, at 6.0% per annum. Past earnings growth has been decent, but unless this is one of those rare businesses that can grow without additional capital investment or marketing spend, we'd generally expect the higher payout ratio to limit its future growth prospects.

In Summary

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. 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 be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for Shaver Shop Group 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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