Flowtech Fluidpower (LON:FLO) Is Increasing Its Dividend To £0.022

The board of Flowtech Fluidpower plc (LON:FLO) has announced that it will be increasing its dividend by 4.8% on the 19th of July to £0.022, up from last year's comparable payment of £0.021. This takes the dividend yield to 2.7%, which shareholders will be pleased with.

See our latest analysis for Flowtech Fluidpower

Flowtech Fluidpower Might Find It Hard To Continue The Dividend

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. While Flowtech Fluidpower is not profitable, it is paying out less than 75% of its free cash flow, which means that there is plenty left over for reinvestment into the business. This gives us some comfort about the level of the dividend payments.

Looking forward, earnings per share could fall by 69.8% over the next year if the trend of the last few years can't be broken. While this means that the company will be unprofitable, we generally believe cash flows are more important, and the current cash payout ratio is quite healthy, which gives us comfort.

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 £0.0334 in 2014, and the most recent fiscal year payment was £0.022. The dividend has shrunk at around 4.1% a year during that period. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Dividend Growth Potential Is Shaky

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. Earnings per share has been sinking by 70% over the last five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.

Flowtech Fluidpower's Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think Flowtech Fluidpower will make a great income stock. 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. This company is not in the top tier of income providing stocks.

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. Just as an example, we've come across 3 warning signs for Flowtech Fluidpower you should be aware of, and 1 of them makes us a bit uncomfortable. Is Flowtech Fluidpower not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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