Animalcare Group (LON:ANCR) Is Increasing Its Dividend To £0.03

The board of Animalcare Group plc (LON:ANCR) has announced that it will be paying its dividend of £0.03 on the 19th of July, an increased payment from last year's comparable dividend. This makes the dividend yield about the same as the industry average at 2.3%.

View our latest analysis for Animalcare Group

Animalcare Group Is Paying Out More Than It Is Earning

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Prior to this announcement, the company was paying out 251% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 36%. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

Over the next year, EPS could expand by 65.2% if the company continues along the path it has been on recently. If the dividend continues on its recent course, the payout ratio in 12 months could be 147%, which is a bit high and could start applying pressure to the balance sheet.

Animalcare Group's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. This makes us cautious about the consistency of the dividend over a full economic cycle. The annual payment during the last 6 years was £0.04 in 2018, and the most recent fiscal year payment was £0.05. This works out to be a compound annual growth rate (CAGR) of approximately 3.8% a year over that time. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

Animalcare Group Might Find It Hard To 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 Animalcare Group has been growing its earnings per share at 65% a year over the past five years. Strong earnings is nice to see, but unless this can be sustained on minimal reinvestment of profits, we would question whether dividends will follow suit.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would be a touch cautious of relying on this stock primarily for the dividend income.

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. Case in point: We've spotted 3 warning signs for Animalcare Group (of which 1 is significant!) you should know about. Is Animalcare Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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