Gateley (Holdings) (LON:GTLY) Is Due To Pay A Dividend Of £0.062

Gateley (Holdings) Plc (LON:GTLY) has announced that it will pay a dividend of £0.062 per share on the 1st of January. This makes the dividend yield 6.8%, which will augment investor returns quite nicely.

Check out our latest analysis for Gateley (Holdings)

Gateley (Holdings)'s Payment Has Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last payment, the company wasn't making enough to cover what it was paying to shareholders. This situation certainly isn't ideal, and could place significant strain on the balance sheet if it continues.

EPS is set to grow by 61.5% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 85%, which is on the higher side, but certainly still feasible.

Gateley (Holdings)'s Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2015, the dividend has gone from £0.0379 total annually to £0.095. This means that it has been growing its distributions at 11% per annum over that time. Gateley (Holdings) has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

Dividend Growth Is Doubtful

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Over the past five years, it looks as though Gateley (Holdings)'s EPS has declined at around 8.6% a year. 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. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

Gateley (Holdings)'s Dividend Doesn't Look Great

In summary, while it is good to see that the dividend hasn't been cut, we think that at current levels the payment isn't particularly sustainable. The company isn't making enough to be paying as much as it is, and the other factors don't look particularly promising either. Considering all of these factors, we wouldn't rely on this dividend if we wanted to live on the income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. 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 Gateley (Holdings) you should be aware of, and 1 of them is a bit concerning. Is Gateley (Holdings) not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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