Warpaint London (LON:W7L) Is Due To Pay A Dividend Of £0.035

Warpaint London PLC (LON:W7L) has announced that it will pay a dividend of £0.035 per share on the 22nd of November. The payment will take the dividend yield to 1.7%, which is in line with the average for the industry.

See our latest analysis for Warpaint London

Warpaint London's Future Dividend Projections Appear Well Covered By Earnings

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Based on the last dividend, Warpaint London is earning enough to cover the payment, but then it makes up 142% of cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Over the next year, EPS is forecast to expand by 32.0%. If the dividend continues on this path, the payout ratio could be 38% by next year, which we think can be pretty sustainable going forward.

Warpaint London's Dividend Has Lacked Consistency

It's comforting to see that Warpaint London has been paying a dividend for a number of years now, however it has been cut at least once in that time. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The annual payment during the last 7 years was £0.015 in 2017, and the most recent fiscal year payment was £0.09. This implies that the company grew its distributions at a yearly rate of about 29% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Warpaint London has seen EPS rising for the last five years, at 48% per annum. The company's earnings per share has grown rapidly in recent years, and it has a good balance between reinvesting and paying dividends to shareholders, so we think that Warpaint London could prove to be a strong dividend payer.

Our Thoughts On Warpaint London's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Warpaint London's payments are rock solid. While Warpaint London is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 3 warning signs for Warpaint London (of which 1 makes us a bit uncomfortable!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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