Reckon (ASX:RKN) Has Announced That Its Dividend Will Be Reduced To A$0.025

Reckon Limited's (ASX:RKN) dividend is being reduced from last year's payment covering the same period to A$0.025 on the 29th of September. This means the annual payment is 8.6% of the current stock price, which is above the average for the industry.

See our latest analysis for Reckon

Reckon Is Paying Out More Than It Is Earning

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before making this announcement, Reckon was paying out quite a large proportion of both earnings and cash flow, with the dividend being 96% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.

Looking forward, EPS could fall by 6.5% if the company can't turn things around from the last few years. If the dividend continues along recent trends, we estimate the payout ratio could reach 1,409%, which could put the dividend in jeopardy if the company's earnings don't improve.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2013, the dividend has gone from A$0.085 total annually to A$0.05. The dividend has shrunk at around 5.2% a year during that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Dividend Growth May Be Hard To Come By

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Reckon has seen earnings per share falling at 6.5% per year over the last five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth.

The Dividend Could Prove To Be Unreliable

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The payments are bit high to be considered sustainable, and the track record isn't the best. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 2 warning signs for Reckon that you should be aware of before investing. Is Reckon not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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