Character Group (LON:CCT) Is Increasing Its Dividend To UK£0.07

The board of The Character Group plc (LON:CCT) has announced that it will be increasing its dividend on the 29th of July to UK£0.07. This makes the dividend yield 3.2%, which is above the industry average.

View our latest analysis for Character Group

Character Group's Dividend Is Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before making this announcement, Character Group was easily earning enough to cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

EPS is set to fall by 17.8% over the next 12 months. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 32%, which is comfortable for the company to continue in the future.

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. Since 2012, the dividend has gone from UK£0.06 to UK£0.14. This implies that the company grew its distributions at a yearly rate of about 8.8% over that duration. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

We Could See Character Group's Dividend Growing

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see Character Group has been growing its earnings per share at 6.7% a year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Character Group's prospects of growing its dividend payments in the future.

In Summary

Overall, this is a reasonable dividend, and it being raised is an added bonus. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 3 warning signs for Character Group you should be aware of, and 2 of them are a bit unpleasant. Is Character Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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