Stock Analysis

Midwich Group (LON:MIDW) Is Paying Out A Larger Dividend Than Last Year

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Midwich Group plc (LON:MIDW) has announced that it will be increasing its dividend from last year's comparable payment on the 16th of June to £0.105. This takes the dividend yield to 3.2%, which shareholders will be pleased with.

Check out our latest analysis for Midwich Group

Midwich Group's Payment Has Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. The last dividend made up a very large portion of earnings and also represented 88% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but we don't think that there are necessarily signs that the dividend might be unsustainable.

Over the next year, EPS is forecast to expand by 88.4%. If the dividend continues along recent trends, we estimate the payout ratio will be 47%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

AIM:MIDW Historic Dividend March 17th 2023

Midwich Group's Dividend Has Lacked Consistency

Midwich Group has been paying dividends for a while, but the track record isn't stellar. This suggests that the dividend might not be the most reliable. The annual payment during the last 6 years was £0.0306 in 2017, and the most recent fiscal year payment was £0.15. This works out to be a compound annual growth rate (CAGR) of approximately 30% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

Midwich Group May Find It Hard To Grow The 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. Unfortunately, Midwich Group's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. Midwich Group's earnings per share has barely grown, which is not ideal - perhaps this is why the company pays out the majority of its earnings to shareholders. This isn't the end of the world, but for investors looking for strong dividend growth they may want to look elsewhere.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The track record isn't great, and the payments are a bit high to be considered sustainable. We don't think Midwich 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. 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 picked out 2 warning signs for Midwich Group that investors should know about before committing capital to this stock. Is Midwich Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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