Animalcare Group (LON:ANCR) Is Paying Out A Larger Dividend Than Last Year

Animalcare Group plc (LON:ANCR) has announced that it will be increasing its dividend from last year's comparable payment on the 19th of July to £0.03. This makes the dividend yield about the same as the industry average at 2.0%.

See our latest analysis for Animalcare Group

Animalcare Group Doesn't Earn Enough To Cover Its Payments

Solid dividend yields are great, but they only really help us if the payment is sustainable. 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%. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

Earnings per share could rise by 65.2% over the next year if things go the same way as they have for the last few years. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 148% over the next year.

Animalcare Group's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2018, the dividend has gone from £0.04 total annually to £0.05. This means that it has been growing its distributions at 3.8% 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.

Animalcare Group Might Find It Hard To Grow Its Dividend

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. We are encouraged to see that Animalcare Group has grown earnings per share at 65% per 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. This company is not in the top tier of income providing stocks.

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. To that end, Animalcare Group has 4 warning signs (and 1 which is concerning) we think 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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