Warpaint London's (LON:W7L) Dividend Will Be Increased To £0.075

The board of Warpaint London PLC (LON:W7L) has announced that it will be increasing its dividend by 25% on the 4th of July to £0.075, up from last year's comparable payment of £0.06. This will take the annual payment to 2.5% of the stock price, which is above what most companies in the industry pay.

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

A big dividend yield for a few years doesn't mean much if it can't be sustained. Based on the last payment, Warpaint London was paying only paying out a fraction of earnings, but the payment was a massive 117% of cash flows. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.

Looking forward, earnings per share is forecast to rise by 49.5% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 38% by next year, which is in a pretty sustainable range.

See our latest analysis for Warpaint London

Warpaint London's Dividend Has Lacked Consistency

Warpaint London has been paying dividends for a while, but the track record isn't stellar. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2017, the dividend has gone from £0.015 total annually to £0.095. This works out to be a compound annual growth rate (CAGR) of approximately 26% a year over that time. Warpaint London has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Warpaint London has impressed us by growing EPS at 66% per year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic 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, Warpaint London has 3 warning signs (and 1 which shouldn't be ignored) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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