Young's Brewery (LON:YNGA) Has Announced That It Will Be Increasing Its Dividend To £0.1222

Young & Co.'s Brewery, P.L.C.'s (LON:YNGA) periodic dividend will be increasing on the 5th of December to £0.1222, with investors receiving 6.0% more than last year's £0.115. This makes the dividend yield 3.0%, which is above the industry average.

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Young's Brewery's Payment Could Potentially Have Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, Young's Brewery's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

Looking forward, earnings per share is forecast to rise exponentially over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 32%, which would make us comfortable with the dividend's sustainability, despite the levels currently being elevated.

See our latest analysis for Young's Brewery

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of £0.165 in 2015 to the most recent total annual payment of £0.231. This implies that the company grew its distributions at a yearly rate of about 3.4% over that duration. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

Dividend Growth Could Be Constrained

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see that Young's Brewery has been growing its earnings per share at 34% a year over the past five years. Although earnings per share is up nicely Young's Brewery is paying out 125% of its earnings as dividends, which we feel is borderline unsustainable without extenuating circumstances.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Young's Brewery will make a great income stock. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 2 warning signs for Young's Brewery 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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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.