Animalcare Group's (LON:ANCR) Shareholders Will Receive A Bigger Dividend Than Last Year

Animalcare Group plc (LON:ANCR) has announced that it will be increasing its dividend on the 8th of July to UK£0.024. Although the dividend is now higher, the yield is only 1.3%, which is below the industry average.

See our latest analysis for Animalcare Group

Animalcare Group Might Find It Hard To Continue The Dividend

If it is predictable over a long period, even low dividend yields can be attractive. While Animalcare Group is not profitable, it is paying out less than 75% of its free cash flow, which means that there is plenty left over for reinvestment into the business. In general, cash flows are more important than the more traditional measures of profit so we feel pretty comfortable with the dividend at this level.

EPS is set to fall quite dramatically over the next 12 months. This will make the company unprofitable, and it is also a concern that the cash flows could fall, putting the dividend under pressure.

Animalcare Group's Dividend Has Lacked Consistency

Even in its short history, we have seen the dividend cut. Since 2018, the first annual payment was UK£0.04, compared to the most recent full-year payment of UK£0.048. This works out to be a compound annual growth rate (CAGR) of approximately 4.7% 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 Limited Growth Potential

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. Animalcare Group's EPS has fallen by approximately 61% per year during the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future.

The Dividend Could Prove To Be Unreliable

In summary, while it's always good to see the dividend being raised, we don't think Animalcare Group's payments are rock solid. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We don't think Animalcare Group is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular 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 Animalcare Group in our latest insider ownership analysis. 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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