Appreciate Group's (LON:APP) Upcoming Dividend Will Be Larger Than Last Year's

By
Simply Wall St
Published
November 25, 2021
AIM:APP
Source: Shutterstock

Appreciate Group plc (LON:APP) will increase its dividend on the 6th of April to UK£0.006, which is 50% higher than last year. This makes the dividend yield 5.3%, which is above the industry average.

View our latest analysis for Appreciate Group

Appreciate Group's Dividend Is Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, Appreciate Group was earning enough to cover the dividend, but it wasn't generating any free cash flows. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.

The next year is set to see EPS grow by 53.2%. Assuming the dividend continues along recent trends, we think the payout ratio could be 30% by next year, which is in a pretty sustainable range.

historic-dividend
AIM:APP Historic Dividend November 26th 2021

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2011, the dividend has gone from UK£0.017 to UK£0.012. Doing the maths, this is a decline of about 3.4% 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 Has Limited Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Appreciate Group's earnings per share has shrunk at 16% a year over the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.

The Dividend Could Prove To Be Unreliable

In summary, while it's always good to see the dividend being raised, we don't think Appreciate Group's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Appreciate Group 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. 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 3 warning signs for Appreciate Group that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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