Flowtech Fluidpower (LON:FLO) Is Due To Pay A Dividend Of £0.021

The board of Flowtech Fluidpower plc (LON:FLO) has announced that it will pay a dividend of £0.021 per share on the 21st of July. This payment means that the dividend yield will be 1.9%, which is around the industry average.

View our latest analysis for Flowtech Fluidpower

Flowtech Fluidpower's Payment Has Solid Earnings Coverage

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. The last dividend was quite easily covered by Flowtech Fluidpower's earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

Unless the company can turn things around, EPS could fall by 13.2% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could be 40%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Flowtech Fluidpower's Dividend Has Lacked Consistency

It's comforting to see that Flowtech Fluidpower has been paying a dividend for a number of years now, however it has been cut at least once in that time. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2015, the annual payment back then was £0.0334, compared to the most recent full-year payment of £0.02. This works out to be a decline of approximately 6.2% per year over that time. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend Has Limited Growth Potential

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Flowtech Fluidpower's EPS has fallen by approximately 13% per year during the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.

Our Thoughts On Flowtech Fluidpower's Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. 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. Taking the debate a bit further, we've identified 2 warning signs for Flowtech Fluidpower that investors need to be conscious of moving forward. 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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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.