Gamma Communications (LON:GAMA) Has Announced That It Will Be Increasing Its Dividend To UK£0.088

By
Simply Wall St
Published
May 04, 2022
AIM:GAMA
Source: Shutterstock

Gamma Communications plc (LON:GAMA) will increase its dividend on the 23rd of June to UK£0.088. Even though the dividend went up, the yield is still quite low at only 1.1%.

See our latest analysis for Gamma Communications

Gamma Communications' Payment Has Solid Earnings Coverage

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. However, Gamma Communications' earnings easily cover the dividend. This means that most of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to expand by 8.7%. If the dividend continues on this path, the payout ratio could be 24% by next year, which we think can be pretty sustainable going forward.

historic-dividend
AIM:GAMA Historic Dividend May 4th 2022

Gamma Communications Doesn't Have A Long Payment History

It is great to see that Gamma Communications has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. Since 2015, the first annual payment was UK£0.04, compared to the most recent full-year payment of UK£0.13. This means that it has been growing its distributions at 19% per annum over that time. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. We are encouraged to see that Gamma Communications has grown earnings per share at 23% per year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

We Really Like Gamma Communications' Dividend

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 1 warning sign for Gamma Communications that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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