Trace Group Hold (BUL:T57) Has Announced That It Will Be Increasing Its Dividend To BGN0.25

The board of Trace Group Hold PLC (BUL:T57) has announced that the dividend on 26th of August will be increased to BGN0.25, which will be 56% higher than last year's payment of BGN0.16 which covered the same period. Based on this payment, the dividend yield for the company will be 3.4%, which is fairly typical for the industry.

View our latest analysis for Trace Group Hold

Trace Group Hold's Earnings Easily Cover The Distributions

Unless the payments are sustainable, the dividend yield doesn't mean too much. Trace Group Hold is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

If the trend of the last few years continues, EPS will grow by 12.6% over the next 12 months. If the dividend continues on this path, the payout ratio could be 28% 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. The annual payment during the last 10 years was BGN0.126 in 2014, and the most recent fiscal year payment was BGN0.16. This works out to be a compound annual growth rate (CAGR) of approximately 2.4% a year over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

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. We are encouraged to see that Trace Group Hold has grown earnings per share at 13% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Trace Group Hold's prospects of growing its dividend payments in the future.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Trace Group Hold's payments are rock solid. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would be a touch cautious of relying on this stock primarily for the dividend income.

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. Case in point: We've spotted 5 warning signs for Trace Group Hold (of which 3 can't be ignored!) you should know about. Is Trace Group Hold not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.

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