UP Global Sourcing Holdings (LON:UPGS) Will Pay A Larger Dividend Than Last Year At £0.0482

The board of UP Global Sourcing Holdings plc (LON:UPGS) has announced that the dividend on 27th of January will be increased to £0.0482, which will be 45% higher than last year's payment of £0.0333 which covered the same period. This makes the dividend yield 4.2%, which is above the industry average.

View our latest analysis for UP Global Sourcing Holdings

UP Global Sourcing Holdings' Dividend Is Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, UP Global Sourcing Holdings was paying a whopping 193% as a dividend, but this only made up 28% of its overall earnings. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.

Looking forward, earnings per share could rise by 14.7% over the next year if the trend from the last few years continues. Assuming the dividend continues along recent trends, we think the payout ratio could be 49% by next year, which is in a pretty sustainable range.

UP Global Sourcing Holdings' Dividend Has Lacked Consistency

It's comforting to see that UP Global Sourcing Holdings has been paying a dividend for a number of years now, however it has been cut at least once in that time. This makes us cautious about the consistency of the dividend over a full economic cycle. The dividend has gone from an annual total of £0.0324 in 2016 to the most recent total annual payment of £0.0563. This implies that the company grew its distributions at a yearly rate of about 9.6% over that duration. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

The Dividend Looks Likely To Grow

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. UP Global Sourcing Holdings has seen EPS rising for the last five years, at 15% per annum. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think UP Global Sourcing Holdings' payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 3 warning signs for UP Global Sourcing Holdings (1 makes us a bit uncomfortable!) that you should be aware of before investing. Is UP Global Sourcing Holdings not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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