ConvaTec Group (LON:CTEC) Has Affirmed Its Dividend Of UK£0.012

The board of ConvaTec Group Plc (LON:CTEC) has announced that it will pay a dividend of UK£0.012 per share on the 14th of October. This means that the annual payment will be 1.8% of the current stock price, which is in line with the average for the industry.

Check out our latest analysis for ConvaTec Group

ConvaTec Group's Earnings Easily Cover the Distributions

Unless the payments are sustainable, the dividend yield doesn't mean too much. Before this announcement, ConvaTec Group was paying out 82% of earnings, but a comparatively small 43% 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.

The next year is set to see EPS grow by 13.9%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 59% which brings it into quite a comfortable range.

ConvaTec Group Is Still Building Its Track Record

Looking back, the dividend has been stable, but the company hasn't been paying a dividend for very long so we can't be confident that the dividend will remain stable through all economic environments. The first annual payment during the last 4 years was US$0.028 in 2017, and the most recent fiscal year payment was US$0.057. This means that it has been growing its distributions at 19% per annum over that time. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.

ConvaTec Group'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 ConvaTec Group has been growing its earnings per share at 38% a year over the past five years. EPS is growing rapidly, although the company is also paying out a large portion of its profits as dividends. If earnings keep growing, the dividend may be sustainable, but generally we'd prefer to see a fast growing company reinvest in further growth.

In Summary

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 2 warning signs for ConvaTec Group that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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