Flowtech Fluidpower's (LON:FLO) Dividend Will Be Increased To £0.021

Flowtech Fluidpower plc (LON:FLO) has announced that it will be increasing its periodic dividend on the 21st of July to £0.021, which will be 5.0% higher than last year's comparable payment amount of £0.02. This makes the dividend yield about the same as the industry average at 1.9%.

View our latest analysis for Flowtech Fluidpower

Flowtech Fluidpower's Distributions May Be Difficult To Sustain

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Flowtech Fluidpower is not generating a profit, but its free cash flows easily cover the dividend, leaving plenty for reinvestment in the business. We generally think that cash flow is more important than accounting measures of profit, so we are fairly comfortable with the dividend at this level.

Looking forward, earnings per share could fall by 50.5% 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.

Flowtech Fluidpower's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The dividend has gone from an annual total of £0.0334 in 2014 to the most recent total annual payment of £0.021. Doing the maths, this is a decline of about 5.0% per year. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Dividend Growth Potential Is Shaky

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. Over the past five years, it looks as though Flowtech Fluidpower's EPS has declined at around 50% a year. 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. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. Overall, we don't think this company has the makings of a good income 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. Case in point: We've spotted 2 warning signs for Flowtech Fluidpower (of which 1 is concerning!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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