Character Group's (LON:CCT) Dividend Will Be Increased To UK£0.07

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 2.8%, which is above the industry average.

Check out 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. However, prior to this announcement, Character Group's dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.

EPS is set to fall by 18.4% over the next 12 months. Assuming the dividend continues along recent trends, we believe the payout ratio could be 33%, which we are pretty comfortable with and we think is feasible on an earnings basis.

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 first annual payment was UK£0.06, compared to the most recent full-year payment of UK£0.14. This means that it has been growing its distributions at 8.8% per annum over that time. 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 Growth Potential

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Character Group has impressed us by growing EPS at 7.0% per year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

In Summary

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. The payment isn't stellar, but it could make a decent addition to a dividend portfolio.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Character Group has 3 warning signs (and 2 which can't be ignored) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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