Gooch & Housego (LON:GHH) Has Announced That It Will Be Increasing Its Dividend To £0.079

Gooch & Housego PLC (LON:GHH) will increase its dividend from last year's comparable payment on the 24th of February to £0.079. This takes the dividend yield to 2.3%, which shareholders will be pleased with.

See our latest analysis for Gooch & Housego

Gooch & Housego Doesn't Earn Enough To Cover Its Payments

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Even though Gooch & Housego is not generating a profit, it is still paying a dividend. It is also not generating any free cash flow, we definitely have concerns when it comes to the sustainability of the dividend.

Over the next year, EPS is forecast to grow rapidly. Assuming the dividend continues along recent trends, we could see the payout ratio reach 97%, which is on the unsustainable side.

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. Since 2013, the dividend has gone from £0.06 total annually to £0.126. This works out to be a compound annual growth rate (CAGR) of approximately 7.7% a year over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Gooch & Housego might have put its house in order since then, but we remain cautious.

Dividend Growth Potential Is Shaky

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Gooch & Housego's EPS has fallen by approximately 32% 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. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.

Gooch & Housego's Dividend Doesn't Look Great

In summary, investors will like to be receiving a higher dividend, but we have some questions about whether it can be sustained over the long term. The company isn't making enough to be paying as much as it is, and the other factors don't look particularly promising either. Overall, the dividend is not reliable enough to make this a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 1 warning sign for Gooch & Housego that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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