Avingtrans (LON:AVG) Has Announced That It Will Be Increasing Its Dividend To £0.029

The board of Avingtrans plc (LON:AVG) has announced that it will be increasing its dividend by 3.6% on the 20th of December to £0.029, up from last year's comparable payment of £0.028. Even though the dividend went up, the yield is still quite low at only 1.2%.

See our latest analysis for Avingtrans

Avingtrans' Payment Could Potentially Have Solid Earnings Coverage

If it is predictable over a long period, even low dividend yields can be attractive. Prior to this announcement, Avingtrans' earnings easily covered the dividend, but free cash flows were negative. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

The next year is set to see EPS grow by 159.9%. Assuming the dividend continues along recent trends, we think the payout ratio could be 17% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was £0.027 in 2014, and the most recent fiscal year payment was £0.047. This implies that the company grew its distributions at a yearly rate of about 5.7% over that duration. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

Avingtrans Could Grow Its Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that Avingtrans has grown earnings per share at 7.5% per year over the past five years. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.

Our Thoughts On Avingtrans' Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.

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 1 warning sign for Avingtrans that you should be aware of before investing. Is Avingtrans not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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