Zotefoams (LON:ZTF) Has Announced A Dividend Of £0.0238

Zotefoams plc's (LON:ZTF) investors are due to receive a payment of £0.0238 per share on 7th of October. Although the dividend is now higher, the yield is only 1.5%, which is below the industry average.

View our latest analysis for Zotefoams

Zotefoams' Dividend Is Well Covered By Earnings

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Prior to this announcement, Zotefoams' earnings easily covered the dividend, but free cash flows were negative. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

Looking forward, earnings per share is forecast to rise by 60.0% over the next year. If the dividend continues on this path, the payout ratio could be 23% by next year, which we think can be pretty sustainable going forward.

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 £0.053 in 2014, and the most recent fiscal year payment was £0.0728. This means that it has been growing its distributions at 3.2% per annum over that time. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

The Dividend's Growth Prospects Are Limited

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings has been rising at 3.3% per annum over the last five years, which admittedly is a bit slow. While EPS growth is quite low, Zotefoams has the option to increase the payout ratio to return more cash to shareholders.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Zotefoams is earning enough to cover the payments, the cash flows are lacking. We don't think Zotefoams is a great stock to add to your portfolio if income is your focus.

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 Zotefoams that investors should take into consideration. Is Zotefoams not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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