ME Group International (LON:MEGP) Will Pay A Larger Dividend Than Last Year At £0.0442

The board of ME Group International plc (LON:MEGP) has announced that it will be increasing its dividend by 637% on the 23rd of May to £0.0442, up from last year's comparable payment of £0.006. This will take the annual payment to 4.8% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for ME Group International

ME Group International's Earnings Easily Cover The Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. ME Group International was earning enough to cover the previous dividend, but it was paying out quite a large proportion of its free cash flows. The business is earning enough to make the dividend feasible, but the cash payout ratio of 78% indicates it is more focused on returning cash to shareholders than growing the business.

The next year is set to see EPS grow by 21.6%. Assuming the dividend continues along recent trends, we think the payout ratio could be 47% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of £0.056 in 2014 to the most recent total annual payment of £0.0739. This works out to be a compound annual growth rate (CAGR) of approximately 2.8% a year over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

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. ME Group International has seen EPS rising for the last five years, at 7.1% per annum. Since earnings per share is growing at an acceptable rate, and the payout policy is balanced, we think the company is positioning itself well to grow earnings and dividends in the future.

Our Thoughts On ME Group International's Dividend

Overall, we always like to see the dividend being raised, but we don't think ME Group International will make a great income stock. While ME Group International is earning enough to cover the dividend, we are generally unimpressed with its future prospects. We don't think ME Group International is a great stock to add to your portfolio if income is your focus.

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. Taking the debate a bit further, we've identified 1 warning sign for ME Group International that investors need to be conscious of moving forward. Is ME Group International not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.