Heavitree Brewery (LON:HVTA) Is Increasing Its Dividend To £0.0385

The board of The Heavitree Brewery PLC (LON:HVTA) has announced that it will be paying its dividend of £0.0385 on the 25th of April, an increased payment from last year's comparable dividend. This takes the dividend yield to 2.6%, which shareholders will be pleased with.

View our latest analysis for Heavitree Brewery

Heavitree Brewery's Projected Earnings Seem Likely To Cover Future Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Heavitree Brewery's dividend was only 15% of earnings, however it was paying out 169% of free cash flows. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

EPS is set to fall by 3.3% over the next 12 months if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio could be 22%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2015, the annual payment back then was £0.07, compared to the most recent full-year payment of £0.045. Doing the maths, this is a decline of about 4.3% per year. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Over the past five years, it looks as though Heavitree Brewery's EPS has declined at around 3.3% a year. 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.

The Dividend Could Prove To Be Unreliable

In summary, while it's always good to see the dividend being raised, we don't think Heavitree Brewery's payments are rock solid. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 3 warning signs for Heavitree Brewery that investors need to be conscious of moving forward. Is Heavitree Brewery not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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