Midwich Group (LON:MIDW) Will Pay A Dividend Of £0.075

Midwich Group plc (LON:MIDW) has announced that it will pay a dividend of £0.075 per share on the 4th of July. The dividend yield of 5.9% is still a nice boost to shareholder returns, despite the cut.

Midwich Group's Projected Earnings Seem Likely To Cover Future Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Midwich Group's dividend made up quite a large proportion of earnings but only 65% of free cash flows. This leaves plenty of cash for reinvestment into the business.

EPS is set to fall by 4.1% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could reach 93%, which is definitely on the higher side.

See our latest analysis for Midwich Group

Midwich Group's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2016, the dividend has gone from £0.0306 total annually to £0.13. This works out to be a compound annual growth rate (CAGR) of approximately 17% 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.

Dividend Growth Is Doubtful

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. In the last five years, Midwich Group's earnings per share has shrunk at approximately 6.3% per annum. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth.

In Summary

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. Overall, we don't think this company has the makings of 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 3 warning signs for Midwich Group you should be aware of, and 1 of them is potentially serious. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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