Inspired (LON:INSE) Is Increasing Its Dividend To £0.014

Inspired Plc (LON:INSE) will increase its dividend from last year's comparable payment on the 8th of December to £0.014. This takes the dividend yield to 3.2%, which shareholders will be pleased with.

Check out our latest analysis for Inspired

Inspired's Distributions May Be Difficult To Sustain

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Inspired is not generating a profit, but its free cash flows easily cover the dividend, leaving plenty for reinvestment in the business. In general, cash flows are more important than the more traditional measures of profit so we feel pretty comfortable with the dividend at this level.

EPS has fallen by an average of 48.5% in the past, so this could continue over the next year. 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. Since 2013, the annual payment back then was £0.011, compared to the most recent full-year payment of £0.028. This implies that the company grew its distributions at a yearly rate of about 9.8% over that duration. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

The Dividend Has Limited Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Inspired's earnings per share has shrunk at 49% a year over 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.

The Dividend Could Prove To Be Unreliable

Overall, we always like to see the dividend being raised, but we don't think Inspired 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 probably look elsewhere for an income investment.

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. To that end, Inspired has 3 warning signs (and 1 which is a bit concerning) we think you should know about. Is Inspired not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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