Stock Analysis

Cake Box Holdings (LON:CBOX) Has Announced That It Will Be Increasing Its Dividend To £0.0263

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AIM:CBOX
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Cake Box Holdings Plc (LON:CBOX) has announced that it will be increasing its periodic dividend on the 9th of December to £0.0263, which will be 5.0% higher than last year's comparable payment amount of £0.025. This will take the dividend yield to an attractive 6.6%, providing a nice boost to shareholder returns.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Cake Box Holdings' stock price has reduced by 39% in the last 3 months, which is not ideal for investors and can explain a sharp increase in the dividend yield.

Check out the opportunities and risks within the GB Consumer Retailing industry.

Cake Box Holdings' Payment Has Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. Based on the last dividend, Cake Box Holdings is earning enough to cover the payment, but then it makes up 95% of cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

EPS is set to grow by 11.7% over the next year if recent trends continue. If recent patterns in the dividend continue, the payout ratio in 12 months could be 78% which is a bit high but can definitely be sustainable.

historic-dividend
AIM:CBOX Historic Dividend November 17th 2022

Cake Box Holdings' Dividend Has Lacked Consistency

The track record isn't the longest, but we are already seeing a bit of instability in the payments. The annual payment during the last 4 years was £0.024 in 2018, and the most recent fiscal year payment was £0.076. This works out to be a compound annual growth rate (CAGR) of approximately 33% a year over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend Looks Likely To Grow

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. Cake Box Holdings has seen EPS rising for the last five years, at 12% per annum. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Cake Box Holdings is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 3 warning signs for Cake Box Holdings that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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