Zotefoams' (LON:ZTF) Dividend Will Be Increased To £0.0462

Zotefoams plc (LON:ZTF) has announced that it will be increasing its periodic dividend on the 2nd of June to £0.0462, which will be 5.0% higher than last year's comparable payment amount of £0.044. Despite this raise, the dividend yield of 1.9% is only a modest boost to shareholder returns.

View our latest analysis for Zotefoams

Zotefoams' Earnings Easily Cover The Distributions

Even a low dividend yield can be attractive if it is sustained for years on end. However, based ont he last payment, Zotefoams was earning enough to cover the dividend pretty comfortably. However, with more than 75% of free cash flow being paid out to shareholders, future growth could potentially be constrained.

The next year is set to see EPS grow by 35.4%. Assuming the dividend continues along recent trends, we think the payout ratio could be 25% by next year, which is in a pretty sustainable range.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was £0.049 in 2013, and the most recent fiscal year payment was £0.0658. This works out to be a compound annual growth rate (CAGR) of approximately 3.0% a year over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

Zotefoams Could Grow Its Dividend

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. It's encouraging to see that Zotefoams has been growing its earnings per share at 8.6% a year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Zotefoams' payments are rock solid. While Zotefoams is earning enough to cover the dividend, we are generally unimpressed with its future prospects. 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. However, there are other things to consider for investors when analysing stock performance. Now, if you want to look closer, it would be worth checking out our free research on Zotefoams management tenure, salary, and performance. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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