Stock Analysis

Goodfellow (TSE:GDL) Has Announced That It Will Be Increasing Its Dividend To CA$0.40

TSX:GDL
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The board of Goodfellow Inc. (TSE:GDL) has announced that it will be increasing its dividend by 32% on the 18th of March to CA$0.40. This will take the annual payment from 4.3% to 5.0% of the stock price, which is above what most companies in the industry pay.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Goodfellow's stock price has increased by 45% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

View our latest analysis for Goodfellow

Goodfellow's Earnings Easily Cover the Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. However, Goodfellow's earnings easily cover the dividend. This means that most of its earnings are being retained to grow the business.

Over the next year, EPS could expand by 78.0% if recent trends continue. If the dividend continues on this path, the payout ratio could be 9.0% by next year, which we think can be pretty sustainable going forward.

historic-dividend
TSX:GDL Historic Dividend March 1st 2022

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The first annual payment during the last 10 years was CA$0.20 in 2012, and the most recent fiscal year payment was CA$0.60. This works out to be a compound annual growth rate (CAGR) of approximately 12% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that Goodfellow has grown earnings per share at 78% per year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

We Really Like Goodfellow's Dividend

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Earnings are easily covering distributions, and the company is generating plenty of cash. All of these factors considered, we think this has solid potential as a dividend stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 3 warning signs for Goodfellow that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

Valuation is complex, but we're helping make it simple.

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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.