Epwin Group's (LON:EPWN) Shareholders Will Receive A Bigger Dividend Than Last Year

Epwin Group Plc (LON:EPWN) will increase its dividend on the 5th of June to £0.0255, which is 8.5% higher than last year's payment from the same period of £0.0235. This takes the dividend yield to 6.1%, which shareholders will be pleased with.

See our latest analysis for Epwin Group

Epwin Group's Dividend Is Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before this announcement, Epwin Group was paying out 77% of earnings, but a comparatively small 21% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

The next year is set to see EPS grow by 86.8%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 35% which would be quite comfortable going to take the dividend forward.

Epwin Group's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. This suggests that the dividend might not be the most reliable. The annual payment during the last 8 years was £0.0282 in 2015, and the most recent fiscal year payment was £0.0445. This means that it has been growing its distributions at 5.9% per annum over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Epwin Group might have put its house in order since then, but we remain cautious.

Dividend Growth Is Doubtful

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. It's not great to see that Epwin Group's earnings per share has fallen at approximately 6.6% per year over the past 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. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Epwin Group will make a great income stock. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 2 warning signs for Epwin Group that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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