Zotefoams (LON:ZTF) Has Announced That It Will Be Increasing Its Dividend To £0.0228

The board of Zotefoams plc (LON:ZTF) has announced that the dividend on 6th of October will be increased to £0.0228, which will be 4.6% higher than last year's payment of £0.0218 which covered the same period. This takes the annual payment to 1.8% of the current stock price, which unfortunately is below what the industry is paying.

See our latest analysis for Zotefoams

Zotefoams' Dividend Is Well Covered By Earnings

If it is predictable over a long period, even low dividend yields can be attractive. Before making this announcement, Zotefoams was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.

Looking forward, earnings per share is forecast to rise by 25.0% over the next year. If the dividend continues on this path, the payout ratio could be 25% 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. Since 2013, the annual payment back then was £0.052, compared to the most recent full-year payment of £0.068. This works out to be a compound annual growth rate (CAGR) of approximately 2.7% a year over that time. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

The Dividend Has Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Zotefoams has impressed us by growing EPS at 6.5% per 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.

Our Thoughts On Zotefoams' Dividend

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Are management backing themselves to deliver performance? Check their shareholdings in Zotefoams in our latest insider ownership analysis. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.