PayPoint (LON:PAY) Is Paying Out A Larger Dividend Than Last Year

The board of PayPoint plc (LON:PAY) has announced that it will be paying its dividend of £0.09 on the 30th of September, an increased payment from last year's comparable dividend. This makes the dividend yield 6.3%, which is above the industry average.

View our latest analysis for PayPoint

PayPoint's Dividend Is Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Based on the last dividend, PayPoint is earning enough to cover the payment, but then it makes up 210% of cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

Unless the company can turn things around, EPS could fall by 8.0% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could be 63%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was £0.243 in 2012, and the most recent fiscal year payment was £0.36. This means that it has been growing its distributions at 4.0% per annum 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.

Dividend Growth Is Doubtful

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. PayPoint has seen earnings per share falling at 8.0% per year over the last five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.

PayPoint's Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think PayPoint's payments are rock solid. While PayPoint is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 4 warning signs for PayPoint (2 are concerning!) that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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