Anpario (LON:ANP) Is Paying Out A Larger Dividend Than Last Year

Anpario plc (LON:ANP) will increase its dividend on the 26th of July to £0.075, which is 2.0% higher than last year's payment from the same period of £0.0735. This will take the dividend yield to an attractive 4.2%, providing a nice boost to shareholder returns.

View our latest analysis for Anpario

Anpario Doesn't Earn Enough To Cover Its Payments

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Anpario's dividend made up quite a large proportion of earnings but only 28% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

EPS is set to fall by 8.6% over the next 12 months if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio could reach 104%, which could put the dividend in jeopardy if the company's earnings don't improve.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the dividend has gone from £0.03 total annually to £0.107. This means that it has been growing its distributions at 14% per annum over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

Dividend Growth May Be Hard To Come By

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Over the past five years, it looks as though Anpario's EPS has declined at around 8.6% a year. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. 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. We don't think Anpario 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. To that end, Anpario has 3 warning signs (and 1 which is potentially serious) we think you should know about. Is Anpario 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.