JTC (LON:JTC) Is Increasing Its Dividend To £0.0767

The board of JTC PLC (LON:JTC) has announced that it will be paying its dividend of £0.0767 on the 28th of June, an increased payment from last year's comparable dividend. Despite this raise, the dividend yield of 1.3% is only a modest boost to shareholder returns.

See our latest analysis for JTC

JTC's Payment Has Solid Earnings Coverage

If it is predictable over a long period, even low dividend yields can be attractive. Before this announcement, JTC was paying out 79% of earnings, but a comparatively small 24% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

Looking forward, earnings per share is forecast to rise exponentially over the next year. If recent patterns in the dividend continue, we could see the payout ratio reaching 32% which is fairly sustainable.

JTC Doesn't Have A Long Payment History

It is great to see that JTC has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. The dividend has gone from an annual total of £0.02 in 2018 to the most recent total annual payment of £0.112. This implies that the company grew its distributions at a yearly rate of about 33% over that duration. JTC has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

JTC's Dividend Might Lack Growth

The company's investors will be pleased to have been receiving dividend income for some time. It's encouraging to see that JTC has been growing its earnings per share at 13% a year over the past five years. The payout ratio is very much on the higher end, which could mean that the growth rate will slow down in the future, and that could flow through to the dividend as well.

We should note that JTC has issued stock equal to 11% of shares outstanding. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. This company is not in the top tier of income providing stocks.

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. Taking the debate a bit further, we've identified 2 warning signs for JTC that investors need to be conscious of moving forward. Is JTC not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.