Character Group (LON:CCT) Will Pay A Larger Dividend Than Last Year At £0.08

The Character Group plc (LON:CCT) will increase its dividend on the 28th of July to £0.08, which is 14% higher than last year's payment from the same period of £0.07. This takes the dividend yield to 5.2%, which shareholders will be pleased with.

View our latest analysis for Character Group

Character Group's Earnings Easily Cover The Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Character Group's dividend was making up a very large proportion of earnings, and the company was also not generating any cash flow to offset this. We think that this practice can make the dividend quite risky in the future.

Looking forward, could fall by 3.9% if the company can't turn things around from the last few years. If recent patterns in the dividend continue, we could see the payout ratio reaching 90% in the next 12 months which is on the higher end of the range we would say is sustainable.

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 £0.066, compared to the most recent full-year payment of £0.17. This implies that the company grew its distributions at a yearly rate of about 9.9% over that duration. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Character Group might have put its house in order since then, but we remain cautious.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Character Group has seen earnings per share falling at 3.9% per year over the last five years. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed.

Character Group's Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think Character Group will make a great income stock. The track record isn't great, and the payments are a bit high to be considered sustainable. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 5 warning signs for Character Group you should be aware of, and 2 of them don't sit too well with us. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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